Bitcoin is creating stark divisions on Wall Street
Bitcoin is now one of the most polarizing topics on Wall Street, crystallizing a clear divide between those who think the digital currency is doomed to end in tears for investors and those who believe it has a bona fide future.
Goldman Sachs GS, +1.46% is exploring a new trading platform that would be centered on trading in the No. 1 cryptocurrency in the world BTCUSD, +0.82% and its rivals like Ether, according to The Wall Street Journal.
The report about the cybercurrency-sector plans for Goldman, ran by Chief Executive Lloyd Blankfein, comes just a few weeks after the rival J.P. Morgan Chase & Co. JPM, +1.39% Chief Executive Jamie DImon declared bitcoin “a fraud” that would “eventually blow up.” “It’s worse than tulip bulbs and won’t end well,” Dimon said, referring to the classic, 17th century asset bubble.
To be sure, J.P. Morgan has also been experimenting with the some of the infrastructure that underpins digital currencies, known as blockchains, or open-sourced, distributed ledgers.
However, the contrasting rhetoric from Dimon, and the positioning by Goldman, highlights the effort by some of the banking universe’s behemoths to identify opportunities in nascent digital currencies that have drawn equal parts ire, intrigue and fear-of-missing-out among heavyweight investors.
Most recently, a single bitcoin bought $4,404 on Monday, while Ether tokens on the Ethereum blockchain were at $296, according to research-site CoinDesk. Both alternative coins have recovered from lows put in last month after Dimon’s excoriating comments and regulatory moves in China helped to push the assets into bear-market territory, defined as a decline of at least 20% from a recent peak.
Year-to-date, bitcoin has enjoyed a stratospheric climb, leaving it up more than 350% so far. Ether has rocketed to a nearly 40-fold increase, or 3,600%, over the same period. Comparatively, the S&P 500 index SPX, +0.39% is up 13% so far this year, while the Dow Jones Industrial DJIA, +0.68% boasts a 14% return, and the Nasdaq Composite Index COMP, +0.32% has climbed about 21%.
Moreover, the total value of digital currencies stands at around $150 billion, compared with $17.5 billion at the start of 2017, with bitcoin’s value representing about half of all cryptos.
That breathtaking ascent has made it impossible for Wall Street investors to ignore digital assets that didn’t exist less than a decade ago. Bets on its success or failure have been ramping up with each record bitcoin racks up.
One big proponent, Fidelity Investments CEO Abigail Johnson, has made cryptocurrency balances visible on the investment manager’s website for customers that hold an account with Coinbase—a popular crypto exchange.
On the other hand, Jordan Belfort, a former stockbroker who pleaded guilty to money laundering and fraud charges in 1999 and went on to write “Wolf of Wall Street”, which was made into a movie of the same name, said he agreed with Dimon’s assessment of bitcoin. He added that his own personal criticism focuses on how easily it can be hacked and stolen.
Further underlining the divide in bitcoin opinions on Wall Street, Morgan Stanley CEO James Gorman, said he saw bitcoin as “certainly something more than just a fad” at an event hosted by The Wall Street Journal last week.
The blockchain—a digital record-keeping apparatus maintained by a network of computers that cannot be altered—may be the biggest area for Wall Street and Main Street bets on cryptocurrencies. Businesses see it as a way to document everything from public-health records to more accurately documenting trading.
For example, the Centers for Disease Control and Prevention is examining how to use blockchain to track the spread of infectious diseases.
For Wall Street’s part, digital currencies aren’t likely to get broader traction in the market until regulators provide better guidance and legislation.
But that won’t stop market participants, including hedge funds and bankers, from positioning themselves for a boomlet in bitcoin investing.
According to an article in Quartz last month, the rise in bitcoin hasn’t been lost on hedge fund masters of the universe. Quartz reports that Blocktower Capital, run by former Goldman executive Matthew Goetz, is among a number of hedge funds looking to capitalize on the bitcoin, and digital currency, boom.
How it all plays out is the big question. But the wagers on either side of the ledger about the future of bitcoin appear to be stacking up.