Goldman to open bitcoin trading operation

MOST big banks have tried to stay far away from the scandal-tainted virtual currency bitcoin.

But Goldman Sachs, perhaps the most storied name in finance, is bucking the risks and moving ahead with plans to set up what appears to be the first bitcoin trading operation at a Wall Street bank.

In a step that is likely to lend legitimacy to virtual currencies – and create new concerns for Goldman – the bank is about to begin using its own money to trade with clients in a variety of contracts linked to the price of bitcoin.

While Goldman will not initially be buying and selling actual bitcoins, a team at the bank is looking at going in that direction if it can get regulatory approval and figure out how to deal with the additional risks associated with holding the virtual currency.

Rana Yared, one of the Goldman executives overseeing the creation of the trading operation, said the bank is clear-eyed about what it is getting itself into.

“I would not describe myself as a true believer who wakes up thinking bitcoin will take over the world,” Yared said. “For almost every person involved there has been personal scepticism brought to the table.”

Still, the suggestion that Goldman Sachs, among the most vaunted banks on Wall Street and a frequent target for criticism, would even consider trading bitcoin would have been viewed as pre- posterous a few years ago, when bitcoin was primarily known as a way to buy drugs online.

Bitcoin was created in 2009 by an anonymous figure going by the name Satoshi Nakamoto, who talked about replacing Wall Street banks – not giving them a new revenue line.

Over the past two years, however, a growing number of hedge funds and other large investors around the world have expressed an interest in virtual currencies. Tech companies like Square have begun offering bitcoin services to their customers, and the commodity exchanges in Chicago started allowing customers to trade bitcoin futures contracts in December.

But until now, regulated financial institutions have steered clear of bitcoin, with some going so far as to shut down the accounts of customers who traded bitcoin. Jamie Dimon, the chief executive of JPMorgan Chase, famously called it a fraud, and many other bank CEOs have said bitcoin was nothing more than a speculative bubble.

Yared said Goldman concluded that bitcoin was not a fraud and that it did not have the characteristics of a currency. But a number of clients wanted to hold it as a valuable commodity, similar to gold, given the limited quantity of bitcoin that can ever be “mined” in a complex, virtual system set up nearly a decade ago.

“It resonates with us when a client says, ‘I want to hold bitcoin or bitcoin futures because I think it is an alternate store of value,’” she said.