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Wall Street Banks Are Reportedly Backing Away From Cryptocurrency (siliconangle.com)
Squeamish from the start about pursuing profits in one of the darker corners of finance, established firms this year slowed their already halting efforts to make a business out of Bitcoin mania. While none has thrown in the towel, and some continue to develop a trading infrastructure, most flinched as the value of virtual coins collapsed.
From a report: Multiple leading firms had either announced or were rumored to be entering the market earlier in the year, but few have come to fruition. The report said that "while none has thrown in the towel, and some continue to develop a trading infrastructure, most flinched as the value of virtual coins collapsed." Notable among those firms was Goldman Sachs. In May it was reported that the company was preparing to launch a bitcoin trading desk that would involve the bank using its own money to trade with clients in a variety of contracts linked to the price of bitcoin.
It was presumed that clients would include hedge funds that deal in cryptocurrencies as well as bitcoin futures contracts such as those launched by CME Group Inc. and Cboe Global Markets Inc. in 2017. Fast forward to December and no such bitcoin trading desk has been launched. In September it was reported that the plan had been abandoned, but a day later Goldman Sachs Chief Financial Officer Martin Chavez denied the report, saying that the bank's "exploration of the digital asset class is an ever-evolving process and is in response to significant client interest." He added that the report was "fake news."
It was presumed that clients would include hedge funds that deal in cryptocurrencies as well as bitcoin futures contracts such as those launched by CME Group Inc. and Cboe Global Markets Inc. in 2017. Fast forward to December and no such bitcoin trading desk has been launched. In September it was reported that the plan had been abandoned, but a day later Goldman Sachs Chief Financial Officer Martin Chavez denied the report, saying that the bank's "exploration of the digital asset class is an ever-evolving process and is in response to significant client interest." He added that the report was "fake news."
Bit coins sudden fall was triggered the day the bit coin futures market opened. No surprise. this allowed people to short bit coin (borrow other people's coins, and sell them, planning to buy them back later). So of course with all those sales in the market the price went down massively. And the herd instinct of Bitcoin faith followed, making a pile for the Short sellers. Further confirming this hypthesis is how the price also miraculously stabilized just about exactly one-short-contract duration later.
THe good news is this, while the futures market did create a way for all the shortsellers to take the slack out an overprices situation, overall it's great news. Futures makets provide hedging insurance as well as price arbitrage. This means much better liquidity and the ability of buy without risk (worried the price will collapse? Buy a short option. Worried the price will go up? sell a short option? )
So ironically, now it is finally safe enough for wall street.
Some drink at the fountain of knowledge. Others just gargle.
That is the purpose of short selling: to reduce the effect of market bubbles. If you didn't have short selling you would only have people who cheerlead to make a stock go up. The short sellers are the only ones looking critically at an investment. That is why companies like Enron hate short sellers (they called them "terrorists" https://www.nytimes.com/2006/0...), and Elon Musks hates them too (https://www.wired.com/story/what-are-short-sellers-and-why-does-elon-hate-them/). Only people and companies with something to hide hate short sellers. If a company is healthy and doing the right thing, short sellers can't affect them.