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Goldman Sachs Shows Up A Day Late And Way Short To The Bitcoin Party

'Twas it Lloyd that killed the beast?

“Too late”

That’s what one former currency trader said on Thursday evening after Bloomberg seemingly confirmed a Wall Street Journal story from October that tipped Goldman’s plans to become the first blue chip bank to make markets in cryptocurrencies.

Since the Journal’s original piece, Lloyd Blankfein has waffled on cryptocurrencies. At times he’s gone out of his way to sound open-minded, but in the wake of extreme volatility at the end of last month, he seemed to sour on Bitcoin when, seated next to Michael Bloomberg, he said the following in an interview with the former’s namesake news outlet:

Something that moves up and down 20 percent in a day doesn’t feel like a currency, doesn’t feel like a store of value. If it works out -- and it gets more established, and it trades more like a store of value, and it doesn’t move up and down 20 percent, and there is liquidity to it -- we’ll get to it.

That was exactly three weeks ago. And needless to say, it has not “traded more like a store of value” over those three weeks. In fact, as of Friday morning, it had plunged nearly 40% from the highs hit ahead of the CME futures launch and is on track for its worst week since 2013:

Screen Shot 2017-12-22 at 10.02.56 AM

Of course the irony in Blankfein’s contention that Goldman is waiting on Bitcoin to stop “moving up and down 20 percent” before the bank “gets to it” is that the exact opposite is probably a more accurate description of the situation.

As detailed in “Bitcoin’s Milkshake Volatility Is Bringing Too Many Boys To The Yard,” there’s an argument to be made that Bitcoin’s most attractive feature for those whose trading revenues are plunging in the central bank-inspired low vol. regime is the volatility. Every day spent mired in what Deutsche Bank has described as “the most boring year ever” for credit and every hour spent adrift on lake placid in equities, is time spent not capitalizing on this:

Screen Shot 2017-12-22 at 10.04.23 AM

And that probably explains the following line from Bloomberg’s Thursday piece:

The bank aims to get the business running by the end of June, if not earlier.

Yes, “if not earlier.” Because make no mistake, this is an opportunity. You’ve got everyone in the world screaming “just get me in,” you’ve got huge spreads, you’ve got massive volatility, and if you’re Goldman, you’ve got an opportunity to be the first “established” player to get into the game. This is the rough equivalent of being the first major cartel to move into the distribution of a new drug that heretofore was only available through upstart dealers with no track record. It’s a veritable goldmine.

Of course the irony here is that under normal circumstances, Wall Street is not only first when it comes to dealing in financial weapons of mass destruction, they’re historically the creators of the WMDs. This time, they’re playing catch-up on something they didn’t create, don’t fully understand, and have thus far missed out on completely.

That sets the stage for a mad dash into the digital void and when you start combining cryptocurrencies with prop trading, flow trading, and systematic execution you’ve got a recipe for all kinds of insanity. If you thought the chat transcripts from previous rigging operations were egregious, just wait until someone gets ahold of the WhatsApp messages from the new breed of Wall Street crypto prop traders.

But coming full circle, it may be too late. Because based on Friday morning’s price action, Bitcoin may not exist by the time Goldman gets that trading desk up and running.



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