Back on December 22, in “Goldman Shows Up A Day Late And Way Short To The Bitcoin Party,” we said the following about the extent to which Wall Street has found itself in a rather unfamiliar position vis-à-vis Bitcoin:
Of course the irony here is that under normal circumstances, Wall Street is not only first when it comes to dealing in financial weapons of mass destruction, they’re historically the creators of the WMDs. This time, they’re playing catch-up on something they didn’t create, don’t fully understand, and have thus far missed out on completely.
That sets the stage for a mad dash into the digital void and when you start combining cryptocurrencies with prop trading, flow trading, and systematic execution you’ve got a recipe for all kinds of insanity. If you thought the chat transcripts from previous rigging operations were egregious, just wait until someone gets ahold of the WhatsApp messages from the new breed of Wall Street crypto prop traders.
This comes at a particularly interesting time – especially for Goldman. Wall Street has seen trading revenue plunge thanks in no small part to the absence of volatility across markets. In Goldman’s case, the firm’s storied commodities business has had a particularly rough go of it, and that’s made all kinds of headlines over the last nine months.
So there’s a certain extent to which cryptocurrencies could represent a kind of new frontier – there’s no shortage of vol. in the space and client interest is running at a fever pitch, reportedly prompting some commodities veterans to contemplate taking the plunge in an effort to reclaim lost glory.
But this comes with considerable risk. If you’re the first to the party among blue chip banks and things go fine, well then you’re the proverbial “smartest guys in the room.” But if something goes wrong, well then you’re the bank that decided to get into stupid-ass cryptocurrencies.
Goldman, never one to be late to the party, started working on a cryptocurrency trading operation, which they were reportedly scrambling to get up and running. Well now, in a new piece out Wednesday evening, Bloomberg reports that the bank was none too pleased with the CFTC’s decision to let the Bitcoin derivatives market get out ahead of itself. To wit:
When two exchanges got the green light in December to list derivatives contracts tied to the suddenly ubiquitous digital coin, Goldman was still mulling whether it was appropriate for its own employees to trade futures, said Rana Yared, a managing director at the firm. Before Goldman had made up its mind, clients started asking the bank to execute their transactions, she said.
At a public meeting held Wednesday in Washington, Yared made clear to the Commodity Futures Trading Commission — the U.S.’s top derivatives regulator — that Goldman wasn’t exactly thrilled with the quick rollout by CME Group Inc. and Cboe Global Markets Inc.
“The launch of the product by both the Cboe and the CME left us in a very interesting position of having to receive contracts from clients that we ourselves have not made a decision as to how to regard,” Yared said. It’s “critical” for major clearing firms like Goldman to be prepared for new contracts so they can “risk manage them appropriately,” she added.
That’s right, dammit. It is “critical” that regulators give Goldman a heads up on this type of shit and give them a chance to properly prepare for it where that may or may not mean getting everything set up in time to maximize the profit potential.
There we go being cynical again.
Make no mistake, we are skeptical about cryptocurrencies and regular readers know we are certainly inclined to think that whatever their motives, Goldman and any other bank who questions the wisdom of moving ahead at light speed on embedding cryptocurrency risk into the system is correct to suggest that everyone needs to slow the fuck down.
Because you know, everything is always safer if Wall Street’s participation on all sides of the trade is maximized from Day 1, right?