Bitcoin bulls rejoice! The bounce in the price of the digital currency is now supported by news that one of Wall Street's most revered financial institutions is planning on setting up a Bitcoin trading operation.
The New York Times reported that Goldman Sachs has taken a shine to the cryptocurrency (or crypto) – a development that will surely deeply offend the sensibilities of Bitcoin's mysterious founder who goes by the pseudonym Satoshi Nakamoto.
The anti-establishment Nakamoto is claimed to have created Bitcoin as a way to flip investment banks the bird as the crypto works outside established banking systems by using a decentralised ledger.
The irony is that Bitcoin needs Goldman Sachs and the very banking system its founder despises if the crypto is to have a future.
After all, it's the perception that Bitcoins are only used for illicit activities with many high-profile investors calling it a bubble or Ponzi-scheme that helped trigger a collapse in the value of Bitcoin from its peak of nearly US$19,000 at the end of 2017 to a low of around US$6,600 a month ago.
Bitcoin has since bounced as risk appetite returned and is hovering around US$9,600 – a 46% jump compared to a 5% increase in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).
A Goldman Sachs-backed trading desk for Bitcoin will help legitimise the digital currency in the eyes of investors and could help draw sceptical buyers into its fold, which is a necessary development if Bitcoin is to retake the US$10,000 mark.
Most other investment banks on Wall Street have so far chosen to steer clear of the crypto and have warned investors not to touch it. But if Goldman Sachs can prove that its new venture is a strong money-spinner, you can bet their tune will change as no self-respecting investment bank will ever turn away from a new revenue source.
I suspect this will also be true for our own highly-regarded Macquarie Group Ltd (ASX: MQG), while other blue-chip financials like AMP Limited (ASX: AMP) and Commonwealth Bank of Australia (ASX: CBA) have shown the length they will go to turn a buck.
But that's the other contradiction that will surely leave Nakamoto gnashing his teeth. Not only does Bitcoin need the backing of Wall Street banks to have a future, but it's the very unscrupulous financial institutions he (or she) is railing against that will likely turn a tidy profit by doing so!
While Goldman Sachs won't trade the actual Bitcoin initially, not till it can secure regulatory approval, it will start using its own money to trade Bitcoin futures on behalf of clients and has hired a digital currency trader, according to the New York Times.
Perhaps Bitcoin can become a legitimate asset class for a balanced portfolio some time in the future, but given the inherent contradictions in the crypto, I am not willing to consider that strategy anytime soon.
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