Goldman Sachs launches new derivatives on bitcoin

Renowned investment bank Goldman Sachs has begun offering a new investment product based on bitcoin. 

Bloomberg reports that this derivative would allow Wall Street investors to place large bets on the price of BTC.

Yesterday, shortly after the announcement, the price of bitcoin suddenly fell by 2.8% in less than an hour, before rising slightly to settle between $55,300 and $56,600. 

The new derivatives from Goldman Sachs are non-deliverable futures contracts paid in cash and linked to the price of BTC. To hedge against volatility, the bank will buy and sell bitcoin futures contracts on the Chicago Mercantile Exchange (CME), using Cumberland DRW as a trading partner. 

The bank has actually already been active in the crypto derivatives market for some time with its desk, but not yet in the spot market. 

Goldman Sachs brings new capital to bitcoin

Goldman Sachs’ head of digital assets for Asia Pacific, Max Minton, said:  

“Institutional demand continues to grow significantly in this space, and being able to work with partners like Cumberland will help us expand our capabilities. The new offering is paving the way for us to evolve our nascent cash-settled crypto-currency capabilities”.

Cumberland DRW’s global head of business development, Justin Chow, added: 

“Goldman Sachs serves as a bellwether of how sophisticated, institutional investors approach shifts in the market. We’ve seen rapid adoption and interest in crypto from more traditional financial firms this year, and Goldman’s entrance into the space is yet another sign of how it’s maturing”.

Goldman Sachs announced back in March that it plans to offer its clients additional vehicles to invest in, or speculate on, cryptocurrency prices.

Many financial institutions are still hesitant to take on the responsibility of holding full-fledged BTC on their own proprietary wallets, preferring to use regulated derivative products that are much easier for them to use. 

These new instruments could bring a lot of new capital into the crypto markets, but not necessarily for investment purposes. 

For example, in mid-December 2017, when bitcoin futures contracts were launched for the first time in history on a major exchange such as Chicago, the speculative bubble that was then in place on the price of BTC burst, and the value of bitcoin fell by 70% in just over a month and a half. 

It is possible that yesterday’s announcement by Goldman Sachs scared some speculators into believing that these new instruments could be used primarily to bet against BTC.