One of the largest investment banks in the world, Goldman Sachs, is planning to reopen its cryptocurrency client operations department. While JPMorgan advises investing in bitcoin, Gazprombank’s subsidiary is already providing its clients with the opportunity to work with digital money.
We examined how the attitude of the largest financial institutions towards bitcoin has changed in recent years.
In early March, sources told Reuters that financial conglomerate Goldman Sachs will provide its clients with access to bitcoin futures and non-deliverable forwards in April. Moreover, in the future, it is possible to launch an ETF on the main digital coin, which in recent years has not been approved by the US Securities and Exchange Commission (SEC).
How was the attitude of banks to bitcoin formed?
Among other things, Goldman Sachs will consider the possibility of launching a custodian service for storing bitcoin. This initiative will develop within the investment bank’s digital assets segment, which will also include projects related to blockchain technology and central bank digital currencies (CBDCs).
Interestingly, this is the second attempt by the company to enter the cryptocurrency market. In the spring of 2018, Goldman Sachs already announced plans to launch a service for trading bitcoin futures. But then the company made a decision on the dying hype of 2017, when bitcoin rose in price 20 times and reached the previous all-time high of $ 20,000, and many altcoins showed even more impressive returns of tens of thousands of percent.
However, when in 2018 the market began to show a downward trend, and the mood of investors changed from positive to extremely negative, Goldman Sachs abandoned plans to enter the cryptocurrency market. Already in September of the same year, the conglomerate announced that it would not create a trading division, and bitcoin itself, in his opinion, would never return to its previous price highs. The main reason was then called regulatory uncertainty.
The banking sector was initially opposed to cryptocurrencies. After all, the core idea of the fight against large banks was laid at the basis of new digital assets. In 2017, many bankers called Bitcoin a bubble and did not hide their negative attitude towards the main digital coin.
However, after more and more large companies began to pay attention to cryptocurrencies and invest millions and billions of dollars in them in 2020, banks were forced to reconsider their attitude.
One of the most outspoken critics of bitcoin is JPMorgan CEO Jamie Dimon. In August 2018, he openly called cryptocurrency a scam and emphasized that he was not interested in this topic. Daimon expressed confidence that governments can ban digital money due to their inability to control it.
The banker called the first cryptocurrency a financial bubble, promised “in a second” to fire traders who trade this asset, and also emphasized that cryptocurrencies are needed for drug dealers or murderers. Daimon was also supported by Goldman Sachs analysts.
Moreover, in February 2018, they drew analogies between cryptocurrencies and speculative bubbles such as the dot-com boom in the US in 1999, when stocks of any companies related to Internet technologies showed large gains. The financial conglomerate stressed that many cryptocurrencies will depreciate and will not exist in 5-10 years.
At the beginning of 2018, analysts of the international bank Citibank expressed a negative attitude towards bitcoin. They also argued that cryptocurrency is a «bubble» that can burst at any moment and negatively affect the entire global economy. Among the main problems of the asset, the financial institution singled out its high volatility, excessive consumption of electricity by mining equipment and the possibility of hacking the Bitcoin blockchain by hackers. Citibank argued that altcoins could displace bitcoin from its leading position in the crypto market.
Even last May, when Bitcoin was in the early stages of the current wave of growth that brought Binance to its all-time high above $ 58,000, JPMorgan and Goldman Sachs urged clients not to invest in cryptocurrency. This was told by the director of the investment company DAIM, Adam Pokornitsky, whose client revised plans to buy BTC after talking with the consultants of these two banks.
Russian banks have been (and continue to do so) with even harsher criticism of the new type of assets. For example, at the end of February, the head of Otkritie Bank and former Russian Finance Minister Mikhail Zadornov compared bitcoin to a financial pyramid, which was Sergei Mavrodi’s MMM. Zadornov stressed that there is absolutely no consumer value behind the first cryptocurrency. He called the growth of the coin’s quotes in the last year «an absolute coincidence.»
The head of VTB, Andrey Kostin, even went over to insults, calling the miners counterfeiters. According to him, the cryptocurrency market has no prospects for development, since the financial system is becoming more transparent, banking secrecy and offshores are disappearing, and there is still no mechanism for regulating digital money.
In 2017, the head of the Bank of Russia Elvira Nabiullina also quite openly compared bitcoin to financial pyramids. She explained that the regulator will not legalize cryptocurrencies so as not to create additional interest in them.
Can’t Win – Lead
In the last year, when big companies like Tesla Elon Musk, Jack Dorsey Square and Michael Saylor’s MicroStrategy began investing hundreds of millions and billions of dollars in bitcoin, many banks changed their policies regarding the first cryptocurrency.
The most striking example confirming this assumption is Visa’s recent announcement of the launch of its own system (API) for the purchase of cryptocurrencies, which will be integrated by banks. The payments giant would not have developed a product of this kind if it was not in demand among financial institutions.
However, the position of banks in relation to digital money could have changed earlier, even before it became publicly known. So, two years ago, in January 2019, a former Morgan Stanley employee, and now the leading consultant for Coinbase operations in the UK, Marcus Hughes, said that large financial institutions are not waiting for Bitcoin to disappear. According to him, banks eschew cryptocurrencies solely due to the lack of transparent regulation.
Even Russian banks, which are considered one of the most conservative in relation to the new type of assets, have gradually begun to change their attitude. For example, in October last year, a subsidiary of Gazprombank in Switzerland provided its clients with the opportunity to work with cryptocurrency. For this, the company received a special license from the Swiss Financial Market Supervisory Authority (FINMA). Thus, a subsidiary of Gazprombank began to carry out operations with cryptocurrencies of corporate and institutional clients. For example, provide custody services, make payments, and convert cryptocurrencies into fiat money. Clients of the Italian bank Banca Sella and the Swiss Basler Kantonalbank also have access to such transactions.
Andrei Kostin also partially changed his attitude to cryptocurrencies. So, the head of VTB, who called the miners counterfeiters, in February of this year put Bitcoin on a par with gold and the dollar. The banker supported the idea of the Central Bank about the need to protect private investors, otherwise they would look for alternatives, leave the securities market and opt for “less clear, transparent and reliable products” like bitcoin, gold, dollar or foreign accounts. brokers.
At the same time, a year ago, after the entry into force of the fifth EU directive, more than 40 licensed German banks applied to the German Federal Financial Supervision Authority Bafin for permission to provide services related to cryptocurrency.
And in the summer of 2020, important changes took place in US legislation. The country’s national banks were able to store cryptographic keys from cryptocurrency wallets. The Office of Monetary Circulation (OCC) within the Ministry of Finance explained that the country’s financial institutions can now provide safer custodial solutions than the current supply on the market.
Therefore, it is not surprising that strategists at JPMorgan, the bank whose head promised to fire traders who trade cryptocurrency, at the end of February this year began advising their clients to transfer 1% of funds to Bitcoin. Financial analysts now believe digital money can hedge risks from price fluctuations in traditional asset classes such as stocks, bonds, and commodities.
Citibank, which three years ago unequivocally considered bitcoin to be a bubble, now claims that the first cryptocurrency in terms of capitalization can become a means of settlement in international trade. Among the advantages of the asset, analysts highlighted decentralization, transparency, and low transaction costs.
BNY Mellon, the oldest in the United States and the world’s largest depositary bank, announced in February the launch of services for storing and conducting transactions with cryptocurrency in the interests of its customers. To do this, the company will present its own platform that will allow transactions with digital money in the same way as with traditional assets.
A new stage in the global adoption of cryptocurrencies
Large companies are just starting to invest in bitcoin, and financial institutions have only recently begun to add the ability to work with cryptocurrencies. It is obvious that the crypto market is still in its infancy. Therefore, it is quite possible that in the future more and more large banks will change their attitude towards a new type of digital assets.
And the emergence of detailed and transparent regulation of the cryptoindustry will play a huge role in this. Probably, in the near future, the authorities of the largest countries will resolve the issue of legalizing digital money, which will lead to their next stage of development.