ET5 WebTrading:legitimacy now that Goldman Sachs is planning to establish the first Bitcoin trading operation on Wall Street?
Published: 2024-01-26 09:14:58

From its early days in 2009 until its first trade in 2011, Bitcoin has faced numerous challenges in gaining acceptance within the financial world. The currency gained notoriety for being the preferred currency on the Silk Road, an online marketplace for illegal goods. Then came the infamous Mt. Gox incident, where millions of Bitcoins were stolen. These incidents reinforced the notion that Bitcoin was primarily a haven for criminals. Ongoing disputes with tax authorities and a resistance to centralized monetary policy further cast doubt on Bitcoin's legitimacy. Even today, the U.S. Securities and Exchange Commission continues to issue warrants against cryptocurrency traders.

However, despite these setbacks, Bitcoin has continued to evolve and gain traction among users. It has made significant improvements in security, addressing concerns raised by the Mt. Gox incident. It has also been integrated into futures, ETFs, and managed funds. Bitcoin has taken steps to meet regulatory requirements, developing software to enhance transparency and reporting.

The involvement of Wall Street banks marks the next stage in Bitcoin's journey, and this may be driven more by market forces than the question of legality. Despite ongoing challenges, banks have their own reasons to approach Bitcoin with caution. CEOs, such as Jamie Dimon of JPMorgan Chase, have labeled Bitcoin as a "fraud" and focused on the possibility of a bubble. This rejection stems from Bitcoin's challenge to the banks' monetary supremacy and the potential threat cryptocurrencies pose to their profits. However, it's worth noting that the concerns raised also reflect genuine issues related to Bitcoin and other cryptocurrencies. While Bitcoin's security has improved significantly, it remains a primarily anonymous currency, making it challenging to trace if necessary. Moreover, as a computer-generated token without a backing backed by a "gold standard" or Federal Reserve sanctions, discussions of bubbles and fraud are not entirely unfounded.

However, with the substantial increase in value, Wall Street banks are starting to view Bitcoin differently. Goldman Sachs executive Rana Yared recently declared that "Goldman Sachs concluded that Bitcoin is not a fraud." She explained that customers are interested in treating Bitcoin as a commodity, given its mining process and limited availability. Investment banking clients are seeking to invest in Bitcoin futures as they would with other mined commodities.

But does this provide Bitcoin with legitimacy?

Not quite. Banks are driven by profit. If cryptocurrency trading presents a profitable opportunity, they will wait until the risk/reward ratio is justified. Offering Bitcoin trading services is simply a means for banks to protect their market share when their investment clients express interest in Bitcoin. While Goldman Sachs' move is indeed a significant step towards engaging with cryptocurrencies, their motivation lies in securing their position and attracting investment funds. If the involvement of institutional players is what determines legitimacy, then Bitcoin might be deemed legal once futures trading becomes widespread or when the SEC applies securities laws to cryptocurrencies.

The aim of this move is to strengthen Bitcoin's legitimacy in the eyes of investors. As Wall Street banks increasingly trade Bitcoin, other financial institutions may follow suit, especially if this step prompts investment funds to flow into Goldman Sachs. With another reputable institutional player investing in Bitcoin, other investors, particularly institutional ones, may gain the confidence to increase their own investments. 

Bitcoin's journey towards legal recognition might be well underway without us even realizing it, and Goldman Sachs just secured a front-row ticket on Wall Street's Bitcoin investment train.