Going back as far as 2014, when interest in Bitcoin was a mere drop of what it is today, Wall Street giants Goldman Sachs were already scoffing at the digital currency and the interest it was developing.
Goldman has been slowly coming around though, for one of the Wall Street powerhouses, with their CEO, Lloyd Blankfein, happy to talk and mull the potential of Bitcoin and Blockchain. However, the bank has not yet delivered directly into Bitcoin. But, the latest move by mobile payment app Circle to acquire a rather large crypto trading exchange, Poloniex, could see Goldman getting more involved because of their $50 mln investment in the Circle.
Circle’s game plan
Mobile trading apps entering the waters of cryptocurrency is nothing new. The latest example is RobinHood, which has made the headlines recently with its decision to support crypto trading, but with zero-fees.
Circle announced in the past few days that it had acquired Poloniex, in what it called an extension of “its commitment to a new vision for global finance.” The goal for Circle with this acquisition, according to their announcement, is to create “an open global token marketplace.” This will be done through one of the three branches that makes up Circle, called Circle Invest, with its tag line being “crypto without the cryptic.”
“To bringing Circle's experience to increase the scalability and reliability of our platform and operations. User experience is paramount. If we aspire to build a token marketplace that will change the fundamentals of global value exchange, we cannot settle for anything less than excellence in our product.”
Clearly, it’s positive for both platforms when the traditional mobile payment app heads into cryptocurrency and aids with its mainstream development. And on the other hand, this is a positive move for the cryptomarket as it allows easier access to those who have not ventured in already. However, the underlying benefactor of all this could well be a Wall Street Bank, so often touted as the enemy of the decentralized finance system that is steadily becoming a force to be reckoned with.
Ties to Goldman Sachs
Through Goldman’s history with Bitcoin, the bank has gone from denouncing it to proclaiming it cannot be ignored, to mulling its potential over, to investing in Blockchain, and finally being rumored to be opening their own trading desk. The trading desk rumors were refuted by Goldman Sachs as they look to be stopping just short of getting their hands dirty with cryptocurrencies directly.
Goldman Sachs has been building their relationship with Circle since 2013 when Michele Burns, a board member at Goldman Sachs joined the board at Jeremy Allaire’s startup, Circle. From there, Goldman showed its appreciation of the global vision that Circle was proclaiming and put its money where its mouth is by investing $50 mln into the Boston-based company in May 2015.
Managing Director Tom Jessop, who heads the firm’s Principal Strategic Investments Group to focus on strategic investments within the financial technology industry, said back then:
“We think that Circle’s product vision and exceptional management team present a compelling opportunity in the digital payments space.”
This seems to be a move by the Wall Street Bank to get its fingers in the crypto pie without getting delving fully into the crypto trading business. It has a large investment in a company which has acquired a cryptocurrency exchange. Regulators have reacted well to this acquisition with a leaked document showing that the SEC is happy to ease off on some of its charges against Poloniex.
Easing the regulatory path
A Powerpoint slide that was leaked from the confidential Circle presentation was posted by Nathaniel Popper, a writer for the New York Times, who wrote under it: “Just got this slide from a confidential Circle presentation. It does more to explain Circle's acquisition of Poloniex than anything I have seen today.”
The slide explains how the SEC has agreed not to pursue any legal action against Poloniex if the exchange was acquired by Circle. It is also something that could put Goldman’s mind at ease when getting closer to cryptocurrencies as the bank and its operations are of course very much by the book. Goldman’s decisions not to move directly into the cryptocurrency market must have something to do with their strict adherence to regulation and the ties they have with the decision makers.
The current treasury secretary, Steve Mnuchin, is a former Goldman executive, as are past treasury secretaries Hank Paulson and Robert Rubin. There are a number of lower-level government officials are former employees of Goldman. One former CEO of Goldman Sachs, Jon Corzine, resigned to become a US senator and later governor of New Jersey.
Circle has shown already that despite operating in the regulatory grey area of cryptocurrencies, their position is strongly aligned to following rules that will come from regulators.
In a testimony before the Senate Committee on Homeland Security and Governmental Affairs hearing entitled “Beyond Silk Road: Potential Risks, Threats and Promises of Virtual Currencies,” in 2013 CEO Jeremy Allaire explained his commitment to regulation as a money services business.
“We are fully committed to complying with all applicable laws and regulations and establishing comprehensive risk management protocols. In particular, recognizing that we are subject to regulation as a money services business, we have registered with FinCEN as a money transmitter, and are actively seeking licenses from US State financial authorities to operate as a money transmitter within their jurisdictions.”
Still not a bad thing
If Goldman plans to use Circle to enter deeper in the cryptocurrency realm, it is can be a positive for the crypto community. However, the cagey approach from Goldman to crypto continues even after the announcement by Circle was made.
Sharmin Mossavar-Rahmani, the CIO of Goldman, was reported as saying that as it stands, cryptocurrencies are a bubble.
“We think cryptocurrencies in their current format, meaning that in the current incarnation, are in a bubble...The Bitcoin prices are astronomical. Then we compare that to Ether, and Ether is even more astronomical. So clearly, these valuations don't make sense to us.”
As it often occurs, Mossavar-Rahmani also has lots of positives to say about Blockchain. “Our view is that while we like the concept of Blockchain, and think it will evolve into a useful tool for companies, for the financial industry.”
The message is mixed. While continuing the series of skeptic declarations, one of the biggest investment banks in the world has its stake in startup more than friendly to digital currencies. There might be some already in the cryptocurrency market that does not like the idea of a Wall Street Bank moving closer to entering the space, but if Goldman is looking to help Circle to success, and easing the regulatory pathway, it could well set out a workable road for others to follow.