Hedge And Leverage!
A recent announcement by a leading global investment bank has taken trading in bitcoin to new heights. Goldman Sachs, the infamous giant of Wall Street, recently partnered with Galaxy Digital, a huge crypto investment firm, to provide Bitcoin futures trading to its clients. The new feature allows traders to hedge their leveraged bets. The decision comes in light of the recent popularity and customer-base gathered by the largest cryptocurrency.
What are futures and what does it mean for bitcoin?
Futures are derivative contracts which derive its value from an underlying asset, in this case bitcoin. They are contracts which enable the users to speculate on price fluctuations. Futures constitute a part of derivatives and are highly leveraged financial instruments. They can also be used as a hedge against long or short positions. These strategies help to mitigate the risks if the price takes a turn for the worse.
With the introduction of futures by a leading bank, Bitcoin is likely to thrive better than before due to its participation. We can also expect higher than usual volumes in Bitcoin going forward. More participation from regulated institutions is likely to reduce the historical volatility of Bitcoin.
All you need to know:
Goldman Sachs reopened its crypto trading department after a three-year hiatus because of growing demand from its institutional clients. The bank has partnered up with a leading crypto investment firm, Galaxy Digital, which has agreed to provide liquidity to Goldman Sachs for Bitcoin futures trades.
Galaxy Digital will act as a market maker, for block trades on CME Group. The trades will represent the first time that Goldman Sachs will use a crypto firm as a third party since the investment bank set up its cryptocurrency desk last month.
This decision by Goldman Sachs, done after facing pressure from clients wanting exposure to Bitcoin, will revolutionize trading beyond Wall Street. By becoming the first major U.S bank to offer trading products in cryptocurrencies, Goldman Sachs will inspire other banks to enter the crypto market to expand their exposure to diverse asset classes.
Goldman approached Galaxy for access to Bitcoin trading because the banking industry cannot handle bitcoin products efficiently due to the prevailing regulations. The introduction of complex bitcoin trading products marks the entry of Wall Street into the premature crypto market. Goldman Sachs will now be able to offer clients access to bitcoin through derivative contracts, taking a page from the established stock markets and the world of finance.
Early Stance Against Bitcoin:
However, the early days were not so good between the bank and cryptocurrencies. Goldman Sachs was known for its firm stance against cryptocurrencies. Goldman did not consider cryptocurrencies and bitcoin an ‘asset class’ and the bank gave several reasons to justify the illegitimacy of bitcoin. It slammed bitcoin on the pretext of not providing cash flow, nor facilitating diversification and having no evidence of being a hedge against inflation. The analysts said that bitcoin had its value due to its mere scarce supply.
Since then, Goldman has entered the crypto market and offered bitcoin products to its clients, what a journey that has been!
Futures And Options in Ether:
Goldman Sachs also plans to offer futures and options trading in Ether, the cryptocurrency linked to Ethereum blockchain. The bank will unveil its futures and options trading in Ether in the coming months. These trades will take place via exchange-traded notes tracking bitcoin. Goldman Sachs has also introduced futures contract for Ethereum.
In addition to this, Goldman has also invested in cryptocurrency-related start-ups. The bank recently invested $5 million in a company that creates and develops blockchain networks. In May, Goldman also invested $15 million in another cryptocurrency and blockchain data developer, Coin Metrics.
An executive from Goldman was of the opinion that cryptocurrencies, exclusively Bitcoin, will continue to be adopted by institutions. Despite the material volatility, the bank continues to receive interest in the crypto realm.
These products will enhance institutional trading in Bitcoin and Ether forever. Goldman’s entry assures a promising future for Bitcoin and Ethereum in the longer term.