According to a Business Insider article (paywall) yesterday, Goldman Sachs has shelved plans to create a long rumoured crypto trading desk. The news yesterday may have been one of the catalysts for a wide-scale sell-off in crypto markets with Bitcoin losing close to 13% over the course of the day and most other crypto assets following suit.
The Wall Street bank has been rumoured to be working on opening up a crypto trading desk since the heady crypto bull market in late 2017. Those rumours resurfaced in late April 2018 as Goldman hired Justin Schmidt to be the first head of digital asset markets. However, the company has kept their cards close to the vest with regards to their plans for crypto with few public statements involving any details.
Even after the news broke yesterday, company spokeperson Michael DuVally’s statement to Reuters was markedly cagey:
Goldman Reportedly Prioritizing Custody over Crypto Trading Desk
The Business Insider article cites ‘people familiar with the matter’ painting a picture of the bank having lowered its priority in creating a crypto trading desk and instead focusing on a crypto custody solution for the time being.
Custodial solutions in crypto may be one of the prerequisites for large institutional investments and trading in crypto for large institutions regardless.
Unlike the average crypto investor who can store their assets on a crypto wallet, for a bank or financial institution to trade crypto assets they will need a more robust custody.
The change in tack towards custody also provides the bank more time to wait for the regulatory environment around institutional trading of crypto assets to become clearer.
For Goldman to prioritize development of a custody offering before opening a full-fledged crypto trading desk makes a lot of sense and may have been the plan all along.
Regardless of the Wall Street bank’s longer term strategy for crypto, the news yesterday certainly appeared to impact the crypto markets.
The Crypto Bears Jumped on the News
After Bitcoin prices had climbed back to over $7,300 from mid-August lows of just under $6,000, yesterday nearly all of those gains were wiped out. Over the course of the day Bitcoin lost nearly 13% of it’s market value closing around $6,400.
Bitcoin Price For September 5, 2018
It wasn’t just Bitcoin that saw wide-scale sell-offs yesterday — many of the top coins dropped significantly in price. Given that most trading in other coins such as Ethereum, Ripple, Bitcoin Cash, and EOS tend to be traded against Bitcoin the overall trend wiped out a huge amount of market capitalization for many of the top coins.
Also, as of now most of the crypto market is highly correlated to Bitcoin not only because of the trading pairs, but also because its price tends to represents the overall sentiment on cryptocurrencies as a whole.
Despite the ongoing volatility crypto markets face, the drop of over 10% is an extreme reaction to a news story based on unnamed sources of a single financial institution delaying plans for a crypto trading desk.
Are Crypto Markets Being Manipulated?
The large price movement in crypto markets yesterday has prompted some to wonder whether the markets are being manipulated.
On September 2, just two days prior to the Business Insider article about Goldman’s crypto trading desk, there was a large increase in Bitcoin short positions. In the span of about 3 hours, short positions on crypto exchange Bitfinex jumped by 10,000 BTC (worth around $74 million). Speculation is that someone with inside information about the impeding Goldman news took out the massive short position and would be able to profit from the inevitable price drop.
Bitcoin Short Positions on Bitfinex for September 2, 2018
Further to that, a CCN article outlines some of the unusual activity just prior to the sell-off seen in crypto markets tracked by Artificial Intelligence (AI) based RoninAi. The article raises some questions about spikes in ‘social sentiment’ (a measure of social media activity) which occurred just prior to the price drop.
The speculation here is that those behind the $74 million short position could have magnified the price action on the news through social sentiment manipulation.
As the dust has settled today on crypto markets some have called into question whether the ‘people familiar with the matter’ who spoke with Business Insider were actually familiar with anything going on at Goldman Sachs.
Talked with a friend at Goldman this morning .. said crypto traders are still there doing their thing….unless the article purpose y left out an important details he doesnt know what they are talking about…
Now that's what I call fud.
— I am Nomad (@IamNomad) September 6, 2018
So if everything at Goldman is business as usual with regard to the crypto trading desk, one begins to wonder when the nascent crypto markets will mature enough to realize the long-term value of crypto assets and stop jumping at shadows.