The story of Goldman Sachs and its stance on cryptocurrency

Goldman Sachs is one of the largest and most infamous banks in the world today. Founded in 1869 by Marcus Goldman, the bank has become one of the pin-ups for finance on Wall Street.

Like any traditional bank, Goldman Sachs has been sceptical about cryptocurrency from the beginning, with Bitcoin aiming to replace such enterprises. But is the banking giant now becoming more interested in the idea of cryptocurrency? This is the story of Goldman Sachs and its stance on cryptocurrency.

Background

Goldman Sachs in Q1 of 2019 alone managed to rake in $2.25 billion worth of profit. Amazingly, this was lower than projected, causing a small slump in its share price. Even still, to make such profit in one quarter alone highlights the size of the company.

Goldman Sachs is currently run by CEO David Soloman, who replaced Lloyd Blankfein in October 2018. The bank currently employs just over 36,000 people and is a truly global bank.

The 2008 financial crisis

When discussing the largest US banks, it is impossible not to talk about the 2008 financial crisis, which is still causing reverberations throughout the world. Goldman Sachs was able to make some money off of the subprime mortgage crisis by short selling the securities in 2007. Michael Swenson and Josh Birnbaum were two Goldman Sachs traders who did this and made a tidy profit of $4 billion in doing so.

Compared to many of the other major banks and investment firms in the USA, Goldman Sachs came off relatively lightly following the financial crisis, with many others going bankrupt. It was not, however, immune from criticism from both the government and citizens.

As a result of the 2008 financial crisis, many of the major banks in both the UK and USA ended up receiving bailouts from their governments and therefore taxpayers. Although Goldman Sachs has refuted the claim that it kept any bailout funds, this has since been questioned.

Goldman Sachs was exposed to the collapse of insurance firm AIG. When Goldman Sachs received money from the US Treasury, it claimed that the money was sent as compensation to clients. However, it has since emerged that the bank kept $2.9 billion, which ended up entering its own private reserves.

Combine this with the fact that even after the crisis many Goldman Sachs employees received huge bonuses, public opinion turned.

Many political scientists and economists have since argued that the 2008 financial crisis has had a direct affect on the rise of populism we see throughout the world today. 2008 was also a huge turning point for cryptocurrencies, as Bitcoin’s release coincided with a direct catalyst for people to search for alternatives.

The clique

One of the many issues surrounding the larger banks in the world is the clique that has now formed. A list of former Goldman Sachs employees reads like a who’s who of influential bankers who have gone on to Central Bank roles. European Central Bank boss Mario Draghi, Bank of Canada Governor and current Governor of the Bank of England Mark Carney, and United States Secretary of the Treasury Steve Mnuchin are just three former Goldman Sachs employees who have gone on to such roles.

Questions therefore arise over their bias in such roles, as they could potentially favour Goldman Sachs in their dealings.

Goldman Sachs and cryptocurrency

Goldman Sachs and cryptocurrency are not two ideal partners. With Bitcoin attempting to bring down the traditional fiat system, it is directly opposed to such big banks like Goldman Sachs. However, there have been examples of Goldman Sachs coming around to the idea of cryptocurrencies.

Firstly, Circle – the owner of large cryptocurrency exchange Poloniex – is backed by Goldman Sachs. The company has even launched its own stablecoin – the USDC.

Another Goldman Sachs-backed venture is the blockchain security company BitGo. Both Goldman Sachs and investor Mike Novogratz have contributed $15 million towards the project, which aims to provide $100 million worth of insurance to cryptocurrencies stored in cold wallets.

Goldman Sachs CEO David Soloman also stated that although he doesn’t see Bitcoin as a viable store of value, it would be “arrogant” to not think that cryptocurrencies can be successful.

Unlike JP Morgan though, which recently announced that it is creating its own kind of “cryptocurrency”, Goldman Sachs has taken the route of investing in start-ups rather than being directly involved itself.

Conclusion

There is no doubt that Goldman Sachs is a behemoth and widely respected within the “traditional” financial circles. Its appetite for cryptocurrencies is limited, but it has made a few investments behind the scenes for companies that are looking to become involved in the industry. Whether it will follow JP Morgan’s example and dive in with its own form of “cryptocurrency” is another matter though.

Instead, it is more likely that as the industry continues to grow, Goldman Sachs will keep providing capital to cryptocurrency start-ups and investments, earning back its capital return through these methods.