/Why Goldman Sachs Still Can’t Hold Crypto on Behalf of Clients

Why Goldman Sachs Still Can’t Hold Crypto on Behalf of Clients

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Nearly three months have passed since Goldman Sachs, a $73 billion investment bank based in the US, said that it is not ready to facilitate the delivery of “physical Bitcoin” to its clients. The banking giant is still not able to hold cryptocurrencies on behalf of its clients, despite growing demand from clients.

At a conference in New York, Justin Schmidt, the head of digital asset markets at Goldman Sachs, said:

“One of the things they ask me is ‘Can you hold our coins?’ and I say ‘No, we cannot. One of the things we have to take into consideration when we’re building out our business is what we can and cannot do from a regulatory perspective.”

When Can Goldman Sachs Enter the Bitcoin Market?

Goldman Sachs has been facilitating investments into Bitcoin futures for its customers for awhile. In an interview with Bloomberg TV in China, for the first time, Goldman Sachs CEO David Solomon directly confirmed that the company has been clearing Bitcoin futures contract since June.

“We are clearing some futures around Bitcoin, talking about doing some other activities there, but it’s going very cautiously. We’re listening to our clients and trying to help our clients as they’re exploring those things too. Goldman Sachs must evolve its business and adapt to the environment,” Solomon said.

The US-based bank has already entered the cryptocurrency market and has been assisting investors to trade Bitcoin in the futures market.

However, Bitcoin futures markets that are currently in existence in the US market do not promise the physical delivery of Bitcoin, meaning investors are not technically buying Bitcoin from the futures markets but rather contracts that reflect the price of the dominant cryptocurrency.

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Bakkt, the cryptocurrency trading exchange developed by ICE, the parent company of the New York Stock Exchange, is set to open a futures market in January that delivers physical Bitcoin to its investors, but as of now, no regulated US futures market holds cryptocurrencies for its customers.

For Goldman Sachs to hold cryptocurrencies for its clients, it needs regulatory approval to operate as a regulated and trusted crypto custodian. Several companies like Coinbase and BitGo have implemented unique methods to be approved as a custodian.

BitGo, for instance, launched its own regulated custodian, BitGo Trust.

Goldman Sachs executive Justin Schmidt said that custody is an important component which the bank lacks, and without regulatory approval, it will not be able to directly hold digital assets for the bank’s client base.

“Custody is this foundational piece that is absolutely necessary. Custody is part of an overall integrated system where different parts need to work well with each other and safely with each other and you have to be able to trust all the different parts in that chain, from buying something to transferring it to storing it in for the long-term,” added Schmidt.

Clients are Asking

As Schmidt said, clients at Goldman Sachs have begun to ask the bank to provide custodian solutions to protect their investments in digital assets. Over time, as the space finds more regulatory clarity, the bank could find an appropriate time frame to begin operating as a custodian. But as of now, Goldman Sachs believes it is not ready to do that just yet.

Images from Shutterstock

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