As I was preparing for a flight to Mexico for a reporting trip on Wednesday, the crypto asset markets tanked. The supposed reason: a Business Insider story claiming that Goldman Sachs planned to abandon its rumored pursuit of a cryptocurrency trading desk. Apparently, the pullback from one of Wall Street’s biggest, boldest-faced names spooked investors, provoking a selloff for Bitcoin and it"s brethren. Over the course of the day, the price of Bitcoin dropped about $1,000 to roughly $6,400--and it has continued slipping since.
Yet just a day later Goldman’s chief financial officer, Marty Chavez, described the news report to an audience at TechCrunch Disrupt, that annual startup Mecca, as “fake news.” He said the bank planned to expand beyond simply clearing futures contracts, a service it already provides, to offer so-called non deliverable forwards. In other words, he said the bank intends to settle crypto-trading contracts, but in dollars rather than in the asset itself. The next frontier--swapping physical Bitcoin, which requires secure storage of top-secret cryptographic keys--is “tremendously interesting and tremendously challenging,” he noted.
Curiously, Chavez’s remarks did little to restore faith in the markets. The price of Bitcoin was hovering near $6,200 at the time of this newsletter’s composition. Crypto enthusiasts remained rattled.
I was admittedly puzzled by the pessimism. Even the original, panic-inducing story, which Goldman has since debunked, said that the bank was interested in pursuing a custodial solution, a product for securely holding onto crypto assets. I regarded this as a positive signal; the nascent crypto industry needs more options to safely store this stuff. That is not to say Coinbase, Gemini, BitGo and other financial newcomers who offer stewardship services do not do so adequately. But having blue chip banks like Goldman and JPMorgan Chase stamp their imprimatur on Bitcoin coffers of their own will go a long way toward satisfying regulator concerns about the market.
As Chavez cautioned on stage this week, “From the perspective of custody, we don"t yet see an institutional grade custody cases custodian solution for Bitcoin.” If Goldman is indeed exploring a custodial service of its own, then Chavez’s words are self-serving. But he is not wrong.
Until such time, it’s no wonder why the Securities and Exchange Commission continues to reject applications for Bitcoin exchange-traded funds, or ETFs. (If you’re interested in learning more about this, I discussed the agency’s hangups on a recent episode of The Breakdown, a show Fortune produces with its sister publications.) Applicants have so far mostly been proposing to offer these funds by dealing in Bitcoin futures contracts, rather than in physical Bitcoin. But part of Bitcoin’s allure and value proposition is its instant portability and settlement. Why treat Bitcoin like oil barrels?
I suspect Bitcoin ETF applications will have a better shot at approval once more custodial options are on the table, allowing funds to handle the physical asset itself. Before taking bets, we need proper vaults.
THE LEDGER'S LATEST
Coursera Now Offers a $99 Crash Course in Blockchain by Jeff John Roberts
Security Tokens Get a Boost as PayPal Vet Joins 0x Board by Jeff John Roberts
Grayscale Makes $6.3 Million Bet on Cryptocurrency Zen by Jeff John Roberts
To the moon... Facebook is hiring a blockchain dealmaker. You can buy fancy cars with crypto. Forbes profiles Ripple"s tech chief. You can trade coins on Yahoo Finance. Coinbase grows quickly, and reportedly explores a Bitcoin ETF with BlackRock. Crypto custodian gets Lloyd"s backing.
....Rekt: China clamps down. 21-year-old Bitcoin dealer indicted. 81-year-old alleged pump-and-dumper sued by SEC. Blockchain could enable tyrants. ShapeShift wants to know more about you. "Blockchain-enabled..."
BALANCING THE LEDGER
On this week"s Balancing The Ledger, Kathleen Breitman, CEO of Tezos, a crypto project that conducted one of the biggest-ever ICOs last year, dropped by to chat about her next venture. She said she"s planning to start a new company that will try to get people using cryptocurrency through online video games. He reasoning: "The users of these games tend to have the right profile for adopting new digital paradigms," she told us.
Consumer sentiment about cryptocurrency"s prospects remains buoyant, despite this year"s sharp price drops. SharesPost, a financial research group, polled roughly 3,000 people--83% consumers; 17% accredited and institutional investors--to determine their thoughts. Here are some findings.
- 59% of investors and 72% of consumers say they plan to increase their cryptocurrency holdings over the next year.
- 57% of investors and 66% of consumers expect cryptocurrency valuations to grow over the next year.
- The percentage of investors who think crypto will go mainstream in 2020 dropped to 27% from 51%.
- The percentage of consumers who think crypto will go mainstream in 2020 fell to 37% from 42%.
MEMES AND MUMBLES
ETH Giveaway! Elon Musk has been having a busy few weeks--aggravating the SEC, battling with a hip-hop artist, smoking a joint on video, doubling down on defamation--typical CEO stuff. He also cracked a joke about Ethereum, or ETH. Here"s what happened: Musk commended Twitter for removing hundreds of bogus accounts engaged in "coordinated manipulation," and someone replied saying, "Elon so you won"t send me that ETH after all?" (A joking reference to the many fake Twitter accounts that pose as celebrities, like Musk, and offer to give away the cryptocurrency.)
Musk promised "It"s coming, I swear."
FOMO NO MO'
Don"t miss out: An enterprising entrepreneur converted a decrepit, hydro-powered paper mill in Canada into a data center for mining Bitcoin. He believes the cryptocurrency presents an investment opportunity, despite its persistently crashing price. Read Bloomberg"s story about this businessman, Kevin Day, and his search for riches in an all-but-abandoned ghost town.
For most industries, the remoteness of Ocean Falls offsets the benefits of cheap power. It"s about 300 miles up the coast from Vancouver, accessible only by boat or seaplane. ...[S]evere weather is a real issue. It"s one of the rainier places on the continent, and high winds in the long winter months can hinder travel. And so almost every plan--for casinos, breweries, marijuana-growing operations and water-bottling plants--came and went with little tangible impact. At one point, a group of businessmen sought to fill ocean tankers with water from the town and sell it to California or Saudi Arabia. The only substantial business for now is a salmon hatchery.
But several years ago, employees at Boralex, the private utility that owns the dam, began getting phone calls from Bitcoin miners, mysterious people untethered from the restraints of businesses producing actual physical goods. Bitcoin and other cryptocurrencies rely on a decentralized network of computers to confirm transactions, rewarding people who do the work with new coins in a process known as mining. In essence, mining was the pure conversion of electricity into money.