DIVERSIFICATION

Goldman Sachs inadvertently bought a stake in a bitcoin trading desk

Obsession
Future of Finance
Obsession
Future of Finance

Contrary to recent reports, Goldman Sachs CEO Lloyd Blankfein says the investment bank isn’t starting a bitcoin trading desk (paywall). While the company provides services for clients who trade bitcoin derivatives, the executive said in an interview with CNBC that the bank isn’t placing bets on crypto or posting bids and offers on bitcoin with its own money.

Even so, Goldman owns a stake in a trading desk, albeit somewhat inadvertently. The New York bank was part of a $50 million funding round in Circle Internet Financial in 2015, which was designed to allow users to transfer and receive bitcoin. Circle Pay, its main service, now lets people send and receive money in fiat currencies the same way they send texts and emails.

Circle says its second product, Circle Trade, is the leading direct liquidity provider for digital assets like bitcoin, with more than $2 billion worth of transactions each month. Circle says it quotes bids and offers for exchanges, large institutions, and the broader crypto market. (In other words, it’s a trading desk.)

Goldman bought the stake through its principal strategic investment group (PSI), which makes tech company investments that it typically holds for more than five years. The PSI division has a staff of 20 that invests in things like payments and trading technology, according to the bank’s website. The group fits within Goldman’s investing and lending operations, which generated $6.6 billion in revenue in 2017 ($4.6 billion from equity securities), up 61% than the year before. A spokesperson for Goldman declined to comment.

Things have changed a lot since Goldman bought its stake in Circle in 2015, back when a bitcoin was worth about $250. The original cryptocurrency has rallied more than 4,000% since then, and is now seen as less of a means of payment and more of a speculative asset, akin to digital gold. As the bitcoin mania builds, hundreds of other cryptoassets have been created. While global exchanges and some professional traders are scrambling to get in on the trading frenzy, Wall Street investment banks, like Goldman, have been relatively cautious about joining the party.

Circle says it plans to launch another consumer product, Circle Invest, by the end of March, which will provide crypto investing for individual retail customers. In the meantime, Goldman, famous for its trading acumen, now finds itself linked with a company that has deeper-than-expected trading operations in the crypto world.

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