EditorialC. Edward Kelso
Trillions of Wall Street dollars begin to point at crypto: JP Morgan, Goldman Sachs, Fidelity, ICE are getting serious
Back of the envelope calculation reveals crazy amounts of zeros. Goldman Sachs, $916 billion; ICE, $78 billion; Fidelity, $2.1 trillion; NYSE, $23.2 trillion—whether including assets under management, total assets, or even market capitalization, trillions of Wall Street dollars are beginning to pivot toward cryptocurrency, and I didn’t even include JP Morgan.
It’s fair to point out fractions of those amounts are actually being spent in the name of crypto, but the fact remains heavy, heavy hitters are slowly beginning to realize digital assets are to be taken seriously.
Intercontinental Exchange (ICE) are Yanks who own a dozen legacy exchanges, including the grandaddy, the New York Stock Exchange (NYSE). ICE announced recently its as-yet created crypto exchange, Bakkt, will green light, if all goes well, December 12, 2018, as these pages reported.
The Adam White component
The plan appears to be offering physically settled futures, as Bakkt holds the Bitcoin backing futures, in what’s being called the ICE Digital Asset Warehouse. Of the several advantages is one stop shopping for whales: contracts are to be cleared through ICE Clear US. The press release explained, “Each futures contract calls for delivery of one bitcoin held in the Bakkt Digital Asset Warehouse, and will trade in U.S. dollar terms. One daily contract will be listed for trading each Exchange Business Day.”
Bakkt made even more news this month, albeit not in as grand a fashion. A Medium post by CEO Kelly Loeffler boasted of bringing Adam White, formerly of Coinbase, to its founding team. White’s significance is at least two fold. He is to head operations as COO, beginning in November, and so the deck is being assembled in hopes of providing confidence to insiders surely looking on.
Adam White is also defecting from the crypto world, having been the fifth employee ever hired by the largest bank slash exchange in the ecosystem … now valued at $8 billion. Those who might have been wondering if Wall Street was ready to take the sort of leap Bakkt is pushing, can be assured by White’s crypto street cred.
The language of Wall Street
Bakkt’s model is to take out stereotypes built and promoted by conflicts of interests perpetuated by legacy business news media. For example, favorite sayings in the workaday corporate world often involve ‘risk.’ Loeffler address risk, “Our patent-pending market model is focused on mitigating risk while creating opportunities for institutions to serve their clients in a regulated framework for digital assets. This means creating a solution that both provides wanted exposure and limits unwanted exposure.”
The language is designed to entice institutional wallets, and she’s rather wonderful at it. Their proposed conservative market model involves “a requirement of full prefunding for all Bitcoin trades, allowing clients to onboard directly to the warehouse, meaning that clearing members will not be required to handle cryptocurrency themselves, and a new, separate guaranty fund for Bitcoin, fully funded by Bakkt and ICE, helps ensure that non-defaulting clearing member capital is not at risk in the waterfall,” she explained.
The bottom line for Wall Street is put well in her conclusion, as she believes “the sooner a regulatory approach to digital assets is determined, the better positioned we are to support healthy markets and innovation within a dynamic global marketplace.”
Bear market bargains
All of this is happening in a decidedly bear market, of course. Undeterred, smart money tends to do the buy low, sell high dance—and the present tune is all about positioning. Talk has even spread to the expectations game, with a recent report by Abacus Journal regarding JP Morgan and Bakkt.
JP Morgan, of course, is notoriously coy when it comes to crypto. Ecosystem foil, Jamie Dimon, is among the most quotable haters in the world. A good of rule of thumb with these fools is not to listen so much to what they say but, rather, watch what they in fact do.
Abacus claims to have spoken to “two staffers at the firms’ global headquarters who have been working on the relationship between Bakkt and JP Morgan. Let’s just say they didn’t disappoint and their comments just may represent how every global investment bank is planning to engage with Bakkt.”
One of the sources has been at JP Morgan for over ten years. The import here is how Bakkt provides easy landing into crypto, an area many JP Morgan investors are itching to explore, if the source is to be believed. The source explains further, “If I was forced to disclose where we are headed, take a look at the products that Goldman has become comfortable with and that is what we seem to be comfortable with at this time. Not confirming any product or offering, but I can speculate that we will have a trading desk and that clients will be able to access Bitcoin, via Bakkt, in some way shape or form.”
With a little over a month to go until Bakkt makes its formal entrance, another source explains the sleeper power the deal announced with Starbucks placed ICE’s project. “You may be interested in this fact: Starbucks occupies the largest mobile app payments ecosystem in the United States. Bigger than Apple Pay, Google Pay, and Samsung Pay – with 23.4 million users,” this person tells Abacus.
And speaking of Goldman Sachs, at least one report suggests they have customers ‘getting ready’ to actively trade their derivative. Guess which trading platform the Goldman custody offering will employ? Bakkt.
Goldman too has played the expectations whisper, biding their time, even pulling back a proposed crypto trading desk this year. Abacus Journal, again, roots out sources willing to spill the beans in an anon fashion. “All of the pipes, levers, and ‘factories’ that are being constructed to process billions of crypto trades per day will eventually all work together. Bakkt, Fidelity, Nasdaq, ErisX – all of them will eventually clear trades from a place like Goldman Sachs on a daily basis. These firms are just providing access and ‘regulatory insurance’ via custody and some warehousing services. Goldman choosing to work with Bakkt is a nice headline today but may be irrelevant by late 2019.”
Indeed, as quickly as the financial press gives, of course, it can take away. Business PR folks are masters at manipulating journalists in search of clicks and headline fires. Floating rumors gives the company a chance to gauge initial reception to a less than conventional idea, and crypto for sure qualifies.
Newly formed crypto news site, The Block, contrasts Goldman’s supposed entry into the space with that of BlackRock, the multi-trillion dollar asset management company. CEO Larry Fink has long maintained there to be very little relative interest in crypto. This Summer, he stated flatly, “I don’t believe any client has sought out crypto exposure. I’ve not heard from one client who says, ‘I need to be in this.’” Mind the head fakes, Dear Reader. Watch, don’t listen. Watch.
C. Edward Kelso is a financial technology journalist based in Southern California. Follow him on Twitter.
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