Goldman Sachs CFO on Crypto Trading Desk, Bitcoin Derivatives, and Physical Bitcoin ('Tremendously Interesting')

Siamak Masnavi

On Thursday (6 September 2018), R. Martin Chavez (better known as "Marty Chavez"), Goldman Sachs' Chief Financial Officer (CFO), while being interviewed on stage at the Techcrunch Disrupt SF 2018 event in San Francisco, talked about speculation regarding their crypto trading desk, work on a Bitcoin derivative, and challenges of dealing with "physical Bitcoin".

But we start presenting the highlights of this interview, a little bit of history might be useful.

It was 21 December 2017 when Bloomberg reported that investment bank Goldman Sachs, which was already clearing Bitcoin futures launched by Cboe and CME that month, was planning to set up a crypto trading desk:

"Goldman Sachs Group Inc. is setting up a trading desk to make markets in digital currencies such as bitcoin, according to people with knowledge of the strategy. The bank aims to get the business running by the end of June, if not earlier, two of the people said. Another said it’s still trying to work out security issues as well as how it would hold, or custody, the assets."

Michael DuVally, a spokesperson for Goldman later issued a brief statement confirming the bank's interest in crypto:

“In response to client interest in digital currencies, we are exploring how best to serve them."

Then, on 5 September 2018, Business Insider reported that, according to its unnamed sources (people familiar with the matter), Goldman was abandoning (or at least, delay) the idea of setting up a crypto trading desk due to regulatory concerns. 

As covered by CryptoGlobe, this news had a significant impact on investor sentiment if not the actual price action of Bitcoin (and almost all altcoins, which generally tend to move in step with Bitcoin).

Now, we can start to look at the Goldman CFO's comments on the various crypto-related topics discussed in the interview.

Bitcoin Trading Desk Being Reportedly Pushed Off Into the Future

"So, I was in New York, yesterday, and I was co-chairing our risk committee, and I saw the news article [ED: the Business Insider report] come over the Reuters monitor... It wasn't like we had announced anything or anything had changed for us. I think one of the wonderful things about being at Goldman Sachs is that we get written about a lot... I never thought I'd hear myself use this term, but I really have to describe that as fake news."

The Genesis of the Fake News and What Was Wrong About It

"So, what I would say is that the world of financial services... is very broad, and there's a lot of important distinctions inside it. So, when we began talking about exploring describing digital assets, we knew since the beginning -- it's always been the case for us -- that it was going to be an exploration that was evolving over time. And so, as you know we've got a commodities business -- we've been in the commodities markets a long, long time -- Bitcoin, some think of it as a currency... it actually has more properties, you could argue, as a commodity. An in the commodities market, there's many ways of participating. Some people participate in actually trading, for instance, physical oil. Others participate in trading futures contracts, but they never take delivery or make delivery of the physical oil, and then there's over-the-counter (OTC) cash-settled derivatives linked to the price of oil, where you also never make or take delivery of oil.

The exact same case is with Bitcoin. And so what we've been doing for some time, and really, this is always driven by clients... our institutional clients said 'We'd love you to clear these Bitcoin-linked futures contracts offered by the exchanges... so we've been doing that... since May... And then, [the clients said] 'We'd like you to also provide liquidity,  and trade the principal as principal... the futures contracts... not just clear them'. And so, we've been doing that."

Bitcoin Derivatives

"The next stage of the exploration is what we call non-deliverable forwards... These are over-the-counter derivatives... they are setled in U.S. dollars, and the reference price is the Bitcoin-U.S. dollar price established by a set of exchanges, the same one that is referenced in the futures contracts, and so we're working on that now because the clients want it."

Physical Bitcoin

"Physical Bitcoin, something tremendously interesting, and tremendously challenging from the perspective of custody... We don't yet see an institutional-grade custodial solution for Bitcoin. We're interested in having that exist, and it's a long road, and so I would just be speculating... maybe someone who was thinking about our activities here got very excited that we would be making markets as principals in physical Bitcoin, and as they got into it, they realized that is part of the evolution, but is not here yet... I don't know where that came from."

He also said "absolutely not" when asked if they ever set a timeline for trading physical Bitcoin. 

On Owning Crypto Himself

"I do own bitcoin", he answered when asked if he owned any bitcoin, explaining that in 2013, a friend had sent him five bitcoin, which he still had.

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