1. High net worth clients demanding such products. 2. Obvious FOMO. 3. In case this crypto thing becomes big they don’t want to be criticized. 4. All companies are seeing a nice bump in their share prices with any association to crypto
A lot of people jump on guys like Jamie Dimon and Lloyd Blankfein for calling Bitcoin massively volatile / a bubble / whatever, like they hate cryptocurrencies.
They don't care, and they aren't supposed to. Their business is to sell whatever the customer wants to buy, cheaper or easier than they can get it elsewhere - and right now the customer wants to buy Bitcoin. Who cares if the backside falls out of it later?
He can't be merely a skeptic when he's selling his own version to some of the largest banks in the world.
The amount fiat currency can be doubled overnight by the authority over the fiat currency. Stealing, in effect, from all of the people holding that currency. Non-fiat, like gold or bitcoin (at least this is what the true believers believe), have a high amount of work that needs to be done to just get a little bit more of it. No grabbing half the currency overnight.
bitcoin-core can double the amount of bitcoin overnight. They can commit new code which does that and shows up in the next client.
But, that would presumably be noticed: either in the oss repo, or in the blockchain itself.
So I think more accurately, it's sort of in between a fiat currency and a commodity. It's a fiat currency whose operation is completely transparent.
And with Bitcoin Cash gaining in popularity, a fork is not an impossibility. In fact, BCH is popular because it's actually usable unlike BTC at the moment (extremely high fees, slow confirmation times).
It is also my understanding that the crypto- in cryptocurrency enables anonymous trade. This would seem to preclude the need to even pay taxes since no government could even track the transactions. As I understand it this is the primary value proposition of Bitcoin.
Why would you want to pay taxes to the US government in any currency other than the US Dollar? I really don't understand the value there. Do people pay US income taxes in Euros? Why? How?
Blockchain technology aka shared public ledger has a value proposition.
The problem with subprimes was that banks were issuing questionable loans, and then selling them to investors (Without telling them that the loans weren't worth the paper they were printed on.)
This carries a significant reputation risk because they were, quite literally, defrauding their customers.
A crypto trading desk, on the other hand, just lets them buy or sell crypto on a customer's behalf, and charge them a fee for it - much like Coinbase does for retail customers. They won't have any insider knowledge about crypto, and they probably won't even care if BTC goes to $100,000 tomorrow, or to $0. The customer asks the bank to sell them BTC, the bank gives them a quote, and the customer accepts or rejects it. The bank doesn't know if its a good price, nor does it care - and the customer knows that the bank doesn't know, or care.
There's still ways to defraud customers in this arrangement, but there are far fewer incentives to do so... Compared to offloading toxic, shitty mortgages off your books, after having bribed ratings agencies to rate them AAA.
If you really care about crypto, this is a Good Thing (tm). Currently, the counterparty risk with Bitcoin exchanges is through the roof. Some of them allow illegal wash trades, some of them don't follow KYC, some of them go belly-up and steal all your bitcoin and dollars, some of them may be front-running their users, some of them don't allow half their users to withdraw USD, some of them are down for minutes a day... For anyone trading in an extremely volatile environment (Like Bitcoin), this practically screams: "RUN, DON'T WALK AWAY."
The counterparty risk with a Goldman Sachs trading desk is... Much lower.
This is not very dissimilar. I am certain the majority of investors who will buy bitcoin did not do their due diligence in term of how the currency works (in fact I see a lot of pretty financially switched on people around me who seem quite confused on how it works). They buy now because they want the return and will complain that they weren't aware of the risks when they lost their shirt.
There's certainly more due diligence that they could have done, but that's a red herring. There was plenty of outright fraud on the part of the ratings agencies. No subprime mortgage should have been rated triple-A. Yes, you could blame investors and pension funds for not realizing that they were systemically duped, and buyer beware and all that, but the ecosystem expected that CRAs were not flat-out lying to them.
Also, some of those investors were legally obligated to invest portions of their portfolio into AAA instruments. Their hands were, quite literally, tied.
> Investors losing money = investors suing. Selling products that you don't believe in yourself = testifying in front of a bunch of angry senators waiving internals emails about "shitty securities" at you.
When I buy a shitty penny stock from my stock broker, and the stock tanks, I can send as many nasty e-mails to him, and my senator as I want. Unfortunately for me, nobody will care one whit.
When Charles Schwab sells me a share of MSFT stock, it's not because they believe, or don't believe in MSFT. Their opinion of MSFT is completely irrelevant to this transaction. They do it because I asked them to sell me a share, and because someone else asked them to buy a share.
When some crook sells me a mortgage that they underwrote, that they then bribed a credit rating agency to rate highly, that I'm legally obligated to buy... That is an entirely different situation. Do that enough, and you bet some state senator is going to be gunning for them.
I am sure there was fraud as well. But fraud doesn't explain the financial crisis. Investor complacency, untested new product, excess leverage and reliance on short term funding, too much liquidity in the system, interest rates too low for too long, these were the fundamental reasons.
Fraud is the only thing that caused the financial crisis. Period.
Fraud from the top on through the bottom. The guy lying about his income to the mortgage broker who knew the dude was lying (and likely told him how to do it effectively), to the ratings agencies lying, to the wall street banks lying, to robosigning, etc. etc. etc. It was outright fraud every step of the way and almost no one who participated in that market has clean hands.
There's a world of difference between "We misjudged the long-tail risk of the instrument we rated" and "We straight up lied so that we could keep getting business from the banks."
Half the mortgages in some of those AAA instruments were issued to people with income at minimum wage, or with credit rating in the 500s, or to people buying homes that were never even looked at by underwriters. This isn't a "Whoops, our math was a bit off, we didn't expect the collateral to drop in value for a bit."
This is straight-up fraud, and the people carrying it out should have been taken out back, and had their shirts taken away from them. We need more, not less personal responsibility from our professional sectors.
This exact phrase should be painted on the wall of the lobby of every investment bank in the world.
This move by Goldman is based on learning. They will trade against the clients. Except they would hedge it.
I really doubt getting bailed out should be called "burned". More like they realized they could get away with murder.
EDIT: I work in the area, not a shill.
>Best performing asset class over the last few years.
Previous performance is not a predictor.
>Even if it is a bubble, you might as well allocate a few %'s of your portfolio to it if you're wealthy
If it's a bubble it's a terrible idea to allocate a few percentage points to it.
Why? The word 'bubble' has negative connotations, but the flip side is the only opportunity of a great multiplier on your investment in a short time is during a bubble. Caveat of course, you can lose a lot of money, but that's why you allocate 1% of your portfolio so you can still survive.
[1] Although some whale customers may be able to. They may win big - or at least, lose less, at your expense.
It's crazy to think an amateur investor in Bitcoin is going to be able to "keep the exits clear". By the time you see the downturn those exits are long gone.
If an amateur can actually guess when the downturn starts (a really big if), they should not have much of a problem exiting. Even if a large investor can identify the downturn, if they try to exit quickly, they will probably just exacerbate the problem, without even being able to get all the way out themselves
I mined some bitcoin in the early days, when you could solo-mine for a week or so and net coins. I had a handful of coins that I cashed out for less than $100, because I didn't like Bitcoin as a long-term investment. If I'd sold half, I'd have made a tidy profit off the sale of the first half, with another handful of coins that, even if they tanked, I'm still in the black. But, if they go to some ridiculous number, like $10,000, I'm substantially better off.
Needless to say, I didn't save half, but even for people buying in now (I'm not), could end up doing well, even if the trajectory of BTC is $15k, $20k, $45k, $0, Of course, if the trajectory is $15k, $10k, $5k, $0, they'll be shit out of luck.
But basically it's because we don't try to time the market in that sort of way. Bubbles are great if you can sell right when you need to and (1) Bitcoin is fucking godawful at that and (2) we don't want to try and do that. Better to invest long term and ride an economic wave.
Timing in the sense of "we think European stock are going to do well so we'd likely to slightly increase the allocation across our portfolios" is alright but timing in the sense of "we think we can buy a new type of highly volatile asset with no underlying fundamentals and which doesn't fit neatly into any of our extant asset classes and sell it before it goes bad even though we can't do the same thing with regular old GE stock" is really bad.
Think of it this way, would you ever put 2% of your IRA on a roll of the craps wheel? No, because that's not what that account is for.
EDIT: Maybe a better example would be like buying TSLA options. You wouldn't do that in a portfolio because it's volatility for basically no reason.
We have no idea how far cryptocurrencies will run. There will be corrections along the way, but if it actually is a major bubble it might very well run up to $10tn in market cap before we see a major correction.
But I agree with the options example. Just being OK with risking a part of your portfolio doesn't mean being stupid about it. You want to make sure that the upside is sufficient and the true downside isn't 0. Which is why I would say crypto currently seems like a better investment than angel investing or buying options. You are probably putting 50% of your capital at risk, for a potential 5 to 10x return.
Come on man... That number is straight from your ass.
>I don't disagree with that, but by that definition, no investor should be taking any above average risk. I think being aggressive with a few percentage points of your portfolio on "long shots" or high risk stuff is not necessarily bad.
Not necessarily, it's more about minimizing timing risk. If you think Bitcoin will continue to run up in some sort of Keynesian-Beauty-Contest-Unpoppable bubble and/or is the new gold or what have you then yeah as a long term investment, cool. Most people don't think that though.
>But I agree with the options example. Just being OK with risking a part of your portfolio doesn't mean being stupid about it. You want to make sure that the upside is sufficient and the true downside isn't 0. Which is why I would say crypto currently seems like a better investment than angel investing or buying options. You are probably putting 50% of your capital at risk, for a potential 5 to 10x return.
None of these numbers come from anywhere though. The real answer is that with crypto you're putting ??% of your capital at risk for a potential ? to ?x return. There's no numbers to pin on anything, it's completely baseless. It's like a currency in that respect, it's only worth what people think it is with no underlying fundamental. You can't quantify anything about it because it's based on the psychology of individual investors and the sociology of investing groups. If some guy in Barron's wrote a really good and well researched article about how bitcoin is bad because it can't scale and you really need one of the scaling coins and you should get out now because BTC valuation is only based on there being a greater fool after you and so on the thing and if some guy on reddit wrote the same thing you don't think the price would dip? Of course, BTC is a meme, it only works because people believe in it. So how much do you want to bet on other people buying into it?
This is my biggest concern with Bitcoin right now. There doesn't seem to be any rational way to justify or explain its price.
How would someone go about making the argument that Bitcoin is over or undervalued at $10, or $100, or $100K? What's the justification?
Even currencies have far more fundamentals. Currencies at least represent faith in the governments that issue them, and those governments' ability to pay treasury bonds and manage inflation. I have never heard a good explanation for what the price of Bitcoin should be in terms of USD.
I found the risk/reward to be worthwhile, but I'm not risking what I can't afford to lose.
Yeah, this isn't a mutual fund. Yeah, it's not directly applicable. But chasing previous returns is a way to lose money, not gain it.
If I had $100 million, I wouldn't have any issues with investing $2-3 million in Bitcoin just for shits and giggles.
The idea is that when you have boatloads of money, you don't have to be risk-averse, as the marginal utility of each dollar you have is very low.
The best performing asset class is cocaine. Buy leaves from the growers, process, sell to the red carpet users. Thousands percent every year.
I doubt they care about being criticized and until GS releases Goldman Coin I doubt they're trying to get a share price bump from this.
If it's on exchanges, then it has nothing to do with high net worth clients, or any other kind of client, because they won't be trading with their clients specifically, they'll be trading with other market participants.
if it's OTC, then it could be part of a package of services for clients. That would still a bit weird, though, because a bank would normally act as a broker rather than a dealer for its clients - going to the market and finding them the best price, rather than making its own price.
I think that their reason is much simpler: they think they can make money doing it. I guess you could call that FOMO. But basically, they think that with their trading instincts, technology, and famously huge brains, they can move their prices around so that they can buy low and sell high without getting, as we say in the trade, their faces ripped off.
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