BEYOND RESEARCH: MORGAN STANLEY CRYPTO: Morgan Stanley Is Discussing Several Different Institutional Bitcoin And Ethereum Products

Morgan Stanley released a report late last year that described their take on Bitcoin and made passive mention of the crypto ecosystem in general. The report was widely reported on and it seems that the headline of choice was Morgan Stanley proclaiming that Bitcoin isn’t as much a store of value as it is an institutional asset class set to take on trading, and presumably, volatility needs at big banks and family offices across the globe.

While this language is and should be offensive to Bitcoin maximalists and anyone who believes in the original mission of Bitcoin – it certainly isn’t a surprise. If institutional (and a plurality of retail) clients ask enough times for something these institutions are going to give it to them, pure and simple. There is serious money to be made by creating expensive structured products wrapped around the guise of crypto volatility. The key words there are expensive and volatility. Expensive and volatility.

Morgan Stanley doesn’t have any interest in building out a warehouse facility or cold storage vault to house private keys and racks of hard wallets. There isn’t any money in it. At least not the kind of money that Tier 1 institutions have an interest in earning on that type of investment.

Instead, they are focused on several structured product initiatives that we’ve been made aware of that should be of interest to anyone attempting to get an understanding about how a powerhouse global investment bank is attempting to meet client demands.

Based on extensive discussions yesterday afternoon and again this morning we’ve heard three specific initiatives that are being *discussed* at Morgan Stanley (FYI – much like Goldman Sachs is in *internal discussions* regarding an Ethereum product to satisfy demand) and could come to market in 2019:

  1. A dedicated institutional trade desk that handles futures, OTC transactions, NDF like products that clients traffic across other Tier 1 institutions (Goldman, Citi).
  2. Internal discussions are ongoing as to whether Morgan Stanley uses Bakkt infrastructure *exclusively* with respect to Bitcoin futures transactions or using every resource that exists by 2019 (Bakkt, ErisX, CME, CBOE).
  3. Leadership in Morgan Stanley’s trading divisions are discussing whether or not to go all in on a Bitcoin NDF as well as an Ethereum product that has yet to be given a trading classification.

**Not included in the above list was a less prominently mentioned discussion point that included where does Morgan Stanley fall once a Bitcoin ETF product is created, as well as other SEC approved products throughout 2019. Discussions remain active as to whether or not Morgan Stanley creates their own branded products that are functionally identical to competitor products, or simply offer competitive products and whatever premium fee structures are inherent in the products themselves.

The discussions moving through trading rooms and in strategy sessions at the firm is not whether or not crypto is sustainable or a ‘flash in the pan’ bubble that will eventually fade. The discussion is focused on regulatory approvals and guidance, strategies to benefit from those new rules, and how to best position Morgan Stanley’s crypto products (should they choose to create native structured products) and services to its largest clients.

Which leads us to the dialogue in the Morgan Stanley research report making the rounds today. It adds context to the discussions internally as the firm positions itself for 2019; a year that those we spoke to believe will produce massive adoption, new (and relatively tame) regulations in the US, and trading volumes set to skyrocket.

The ‘money quote’ in the report, as it was told to us (to pay particular attention to) is this:

The net dollar amount in crypto hedge funds in 2016 was $380MM. Today it stands at over $6B.

You don’t need any other explanation for Institutional ‘fomo’ than those hard numbers. Those are funds that are eschewing fiat based products and diving into crypto, even in the midst of a bear market.

Morgan Stanley wants to be a real player in this market. They are working overtime to figure out just how to do it. Regulatory and legal hurdles need to be appropriately approached and handled, but when that happens they are planning to be at the forefront of what they believe will be a highly profitable new ‘super asset class’.

BITCOIN ETF: RESUBMITTED: Van Eck Hits Reset, Bitcoin ETF Shot Clock Restarts

After the VanEck Solid X Bitcoin ETF was pulled from consideration during the US government shutdown speculation regarding why ran its way through crypto circles around the world.

Was it headed for an obvious denial based on the US government shutdown? Was it headed for a denial simply on the merits?

Neither question was answered, but VanEck wasted little time in resubmitting the ‘rule change’ connected to its Solid X partnership Bitcoin ETF.

As shown below, the resubmission occurred yesterday: 

The newly minted submission was announced by VanEck’s Digital Asset Director/Strategist Gabor Gurbacs, a fierce defender of the product and the crypto ecosystem itself.

The resubmission now brings about new questions. Does the regulatory clock go back to step one, or pick up somewhere else in the process? How likely is an approval, given there’d be no reason for a resubmission if a denial was in the offing?

Whatever the process looks like going forward this adds to the pent up bullish news set to grace the institutional space over the following months.

Those of you waiting/hoping that a Bitcoin ETF could serve as a bull run precursor, hope springs eternal it seems.

FIDELITY AND PHILAKONE: Crypto Twitter Spends The Day On Institutional News And Interpersonal Dumpster Fires

One of these things is not like the other. Isn’t that how the song goes? In a 24 hour period on crypto twitter, a known scammer seemed to out ‘ratio’ important institutional crypto news from one of the largest asset managers in the world.

Just in case you happened to miss it, Fidelity sources claimed that the firm has well laid out plans to launch its crypto ‘Digital Assets’ initiative in March. The timing seems to be well calculated, as well as some what correlated to Bakkt; as the two firms continue to compete for the blessing of institutional assets across the global investment banking spectrum.

Custody, a commonplace practice in conventional financial markets like stocks, involves a third party holding onto securities to reduce the risk they’ll be lost or stolen. But while a number of startups have sought to offer the safekeeping service, many Wall Street professionals have longed to work with a large financial services firm, a role Fidelity may fill. Others including Bank of New York Mellon Corp., JPMorgan Chase & Co. and Northern Trust Corp. have explored entering the field. Meanwhile, digital coins are constantly stolen, underscoring the need for better safeguards.”

The news connected to Fidelity made its way quickly around crypto twitter. Even though the crypto markets were unimpressed and didn’t seem to react in the way some would have hoped (bullish), the news still made an impact.

More of an impact than another issue that dominated the ‘CT’ debate throughout the day.

Philakone drama began to spread throughout tweets, retweets, subtweets, and the like. It seems that his claims of being hacked, or stolen from, or some other sort of drama had crypto twitter abuzz.

The short version was this: Philakone claimed to have had $1.6MM stolen from him as a result of a break up he had just suffered. This coming shortly after an avowed social media ‘break’ (of which he seems to take often) that was supposed to last until March 1.

Narrator: It didn’t last that long.

Philakone responded to the break up by outing his ex-girlfriends identity, calling for legitimate violence against her, and exhibiting behavior that doesn’t necessarily surprise many that have paid attention to his particular styling of ‘personal brand’.

The real issue was the threats of violence after a break up. Given the amount of avowed ‘baby whale’ followers that Philakone possesses, this was a dangerous stunt.

In response his ex-girlfriend outed him for buying tens of thousands of followers and being a fraud.

Twitter chose not to suspend his account, but did restrict several tweets that referenced the abhorrent behavior. Respected members of the crypto community came to the aid of the ex-girlfriend/victim and admonished Philakone along the way.

Several others commented on Philakone’s mental health and his need to carefully evaluate his life choices. Of course, others took the opportunity to meme Philakone in fresh new ways, as he seems to be an easy target.

Crypto twitter has found creative ways to psychologically cope with the ever lengthening bear market. And yesterday seemed to be one of the most creative yet. Many timelines were inundated with Fidelity and Philakone commentary from across the globe.

Never change crypto twitter, never change.

FIDELITY DROPS: MARCH CRYPTO DATE SET: Fidelity Sources Claim The Firm Has A Set In ‘Near Stone’ Launch Date

One could make the case that Fidelity’s involvement in crypto is even bigger than Bakkt. As a massive asset manager to the masses, Fidelity’s commitment (albeit from an institutional standpoint at first) will absolutely raise awareness amongst the investing public.

Several sources familiar with the roadmap at Fidelity’s digital assets group told us that the firm has set a date in March to bring their crypto strategy to market.

The crux of Fidelity’s ‘use case’ for their service has to do with custody and Wall Street names that are looking for a ‘named’ trustworthy partner to dip their toes into the crypto waters.

Per Bloomberg:

Custody, a commonplace practice in conventional financial markets like stocks, involves a third party holding onto securities to reduce the risk they’ll be lost or stolen. But while a number of startups have sought to offer the safekeeping service, many Wall Street professionals have longed to work with a large financial services firm, a role Fidelity may fill. Others including Bank of New York Mellon Corp., JPMorgan Chase & Co. and Northern Trust Corp. have explored entering the field. Meanwhile, digital coins are constantly stolen, underscoring the need for better safeguards.”

The other backdrop here is this – Bakkt and Fidelity could be on the cusp of a “Goliath versus Goliath” battle for the hearts and minds (and wallets) of institutional investors as they allocate assets into the crypto space. Fidelity passed on the opportunity to invest in Bakkt nearly a year ago; presumably because they knew they were about to launch their own likeminded solution.

And one marketing note…Fidelity has a leg up on Bakkt strictly from a name recognition standpoint. When you say ‘Fidelity’ very few, if any, investors are going to ask you “who’s that”? When you bring up Bakkt to even sophisticated investors you don’t get the same response – rather, you have to take time to describe what and who Bakkt is.

It remains of interest who hits the markets first. Both Bakkt and Fidelity look to be running neck and neck at the moment.

NOT NEW YORK: CRYPTO UNFRIENDLY: Why New York Won’t Be The Center Of Crypto Innovation And Leadership

New York, one of the first states to adopt virtual currency rules, has taken a relatively strict approach in the regulation of virtual currency activities. The rules, enacted on 24 June 2015, established a regulatory framework for virtual currency businesses that requires operations related to transactions involving any form of virtual currency to obtain a “Bitlicense” from the state.

The strict licensing requirements favor large virtual currency firms and financial institutions. The BitLicense application and licensing process is likely overly burdensome for small companies with limited access to capital and legal resources.

Overview of Bitlicense

Subject to certain exceptions, anyone engaging in any of the following activities is required to obtain a BitLicense from the New York State Department of Financial Services (“NYSDFS”):

• Virtual currency transmission

• Storing, holding, or maintaining custody or control of virtual currency on behalf of others

• Buying and selling virtual currency as a customer business

• Performing exchange services as a customer business

• Controlling, administering, or issuing a virtual currency.

Out-of-state businesses that engage in virtual currency activity involving New York State, or with persons within the state, must obtain a BitLicense to conduct their business.

Some of the regulatory requirements include:

• Minimum capital reserves

• Records of transactions must be kept for at least seven years

• Quarterly financial statements must be submitted within 45 days of the close of a quarter

• Background checks on all employees must be performed by an independent investigatory agency

• Appointment of a dedicated compliance officer

• Enforcement of written anti-fraud, anti-money laundering, cyber security, privacy and information security procedures

• Prior written approval from the superintendent of the  NYSDFS before the company introduces a “material change” to their business model, such as a new product or service

• Prior written approval from the superintendent of the NYSDFS before any merger with or acquisition of any company holding a BitLicense.

The application fee for a Bitlicense is $5000 and the applicant must complete a 31-page application form.

The one-size-fits-all” licensing process does not provide any exceptions for small virtual currency companies.

Application Approval Process Slow, but Improving

The 2015 rules do not impose a deadline on the NYSDFS for completing the licensing process.

Since the enactment of the rules, the NYSDFS has approved only eleven charters or licenses for virtual currency companies.

The license for Genesis Global Trading was not granted for nearly three years, and a license for BitFlyer USA, Inc. was not granted for over a year.

The number of licenses issued will likely increase over the next 12-24 months.

Focus Remains on Consumer Protection: The 2018 New York Attorney General Report

In September, the New York Attorney General (“NYAG”) issued a report that concluded crypto trading platforms vary significantly in their risk management strategies and in the ways they fulfill customer responsibilities.

The NYAG identified three broad areas of concern: potential conflicts of interest; lack of serious efforts to impede abusive trading activity; and limited protections for customer funds.

The NYAG also referred three virtual currency exchanges- Kraken, Binance and the state’s financial regulator for possible legal action and raised concerns over price manipulation and conflicts of interest on trading platforms.

The report concludes that “virtual asset trading platforms have yet to implement serious efforts to monitor and stop abusive or manipulative trading.”

Draft Virtual Currency Legislation Introduced into the State Assembly

Virtual currency bills have been introduced in the State Assembly this year. New York, however, will not likely amend existing rules or introduce major virtual currency legislation until 2020, after the State Assembly is able to review a task force report that must be completed by December 2019.

Bill on the Creation of Virtual Currency Task Force: The bill proposes the creation of a digital currency task force to provide the governor and the legislature with information on the potential effects of the widespread implementation of digital currencies on financial markets in the state. If passed, the bill would establish a group consisting of nine members which would be called on to submit a report to the governor, temporary president of the senate, and the speaker of the assembly by December of 2019. Additionally, the task force would be required to provide the number of digital currencies and exchanges operating in the state, information about large investors in the field, and the energy consumption necessary for coin mining operations. The task force would also provide a review of laws and regulations on digital currency used by other states, the federal government, foreign countries, and foreign political and economic unions to regulate the marketplace.

Bill on Virtual Currency: The bill proposes eliminating the BitLicense and licensing fees. In addition, the bill mandates that any virtual currency business or entity be subject to routine audits by a public or third-party depository service. Any entity in full compliance will receive a digital New York Seal of Approval to reassure consumers that the outlet is trustworthy and secure.

JP MORGAN CHATTER: BAKKT INFRASTRUCTURE: JP Morgan Eyes Bakkt (And ICE) Infrastructure ​As Easy On-Ramp​ For Crypto Exposure

Bakkt has set out to create a product that appeals to institutions in a way that other crypto exchanges and firms have yet to do – ultimately, trust.

Trust in the pricing process. Trust in the custody construct. Trust in the warehousing facility and deliverables. Trust in the narrative that Bitcoin (futures) will be handled on Bakkt’s systems in the same way that gold, silver, and oil futures are handled on their legacy global commodities exchanges. Exchanges where trillions of dollars of transactions change hands on a yearly basis (yes, that is trillions with a T).

The connection that JP Morgan is making with Bakkt is relatively simple – they trust the team, they trust the systems, they trust the history of Jeff Specher, Kelly Loeffler, and ICE. They transact billions in commodities trades on ICE systems already. They trust that Bakkt will be as efficient and transparent as those systems.

And that is exactly the narrative that Bakkt is selling as they talk to potential institutional clients and those that onboard early. Bakkt can be trusted, because ICE and the NYSE can be trusted.

JP Morgan (and more specifically Jamie Dimon) doesn’t want any sort of negative Bitcoin headline given his level of questions surrounding the asset. As stated a couple of months ago, he just “doesn’t want to talk about it.”

But that doesn’t mean several teams at one of the world’s largest banks aren’t preparing to treat Bitcoin like the commodity that the CFTC has dubbed it as, and trade it via Bakkt’s architecture. It is the one name that gives them a level of comfort that they find legally acceptable.

How visible these banks of scale will be with Bakkt from the outset will be very interesting to watch. Bakkt strategically announced themselves with partners like Microsoft, Starbucks and BCG. Massive names that add trust as a backdrop to whatever narrative lives inside the halls of JP Morgan.

One JP Morgan trader took a few moments to give us a little color on how they see and talk about Bakkt:

“Bakkt is the only place we’d approach Bitcoin and the crypto space. Any and all other ‘set ups’ just don’t rise to the legal standard that is acceptable risk for us. Bakkt is the only place that passes that test. Whether we are there as soon as the door opens, or window shop for a few months, it is the only name we are considering in terms of client funds finding their way into crypto.”

It doesn’t surprise us that firms of scale will be cautious with Bakkt and the volume with which they ‘dip their toes in’. Executives will have to get comfortable seeing line items on P&L spreadsheets with the term ‘Bitcoin’ on them – when just a year ago global investment banks were all decrying $BTC as the devil.

Financial markets are constantly evolving, though, and Bakkt seems uniquely positioned to capitalize on the idea of Bitcoin as digital gold. That is the thesis that Bakkt’s roster of All-Star investors believes.

We will find out soon enough.

BAKKT: BEHIND THE PENDING LAUNCH: Faced With An Unexpected Delay, Bakkt Prepares Massive Roll Out And Marketing Blitz

Bakkt has been the talk of the crypto water cooler for nearly six months now. Conversations about it being a “bear market buster” abound, and it just may be. But it has to be approved by the CFTC before that can happen. And as of today, the lights are a bit dim in CFTC offices in Washington, DC – per the US government shutdown.

But that reality isn’t slowing down the inner workings of Bakkt, its staff, and the teams built around the global commodities exchanges controlled by Intercontinental Exchange. The ‘buzzing’ that can be heard amongst those connected to the Bakkt launch is loud and growing. Work is being done and preparations are in full gear.

The clear expectation is that CFTC approval will follow shortly after the reopening of operations at the CFTC following the end of the shutdown. And the Bitcoin initiative known as Bakkt, partnered with Microsoft and Starbucks, will launch like a rocket.

Take a step back and consider the huge venture capital names committed to Bakkt at the moment. A few names connected to their first round of funding read like an All-Star team of sorts: Fortress, Galaxy Digital, Horizon Ventures, M12 (Microsoft’s own venture fund), and a host of others.

The investment is not necessarily a play on Bakkt trading volumes or the price of Bitcoin, but rather on adoption and daily use that Bakkt plans on pursuing. Here is a portion of that case stated by Maria Smith, Vice President, Partnerships and Payments for Starbucks:

“As the flagship retailer, Starbucks will play a pivotal role in developing practical, trusted and regulated applications for consumers to convert their digital assets into US dollars for use at Starbucks. As a leader in Mobile Pay to our more than 15 million Starbucks Rewards members, Starbucks is committed to innovation for expanding payment options for our customers.”

In other words, the play for flagship institutional investors is not the volatility associated with Bitcoin, but rather the real world application of it when you walk into Starbucks and order a Grande Cordusio. With a swipe of a finger and a push of a button, Bitcoin is deployed and used for purchase at one of the largest retail chains in the world.

So what is happening today as Bakkt prepares to launch an entirely new asset into the commodities space?

The Bakkt team is working furiously as they prepare for a marketing and execution blitz that they believe will produce tremendous volumes and attract all manner of institutional clients very, very quickly.

One source familiar with Bakkt’s preparations had this to say about what they expect once CFTC approval occurs:

“Take a close look at the increased public dialogue that Bakkt is having with the crypto and financial community. Whether it is a Medium post by Kelly (Kelly Loeffler, CEO of Bakkt) or social media posts meant to continue to build a Bakkt narrative, the PR and marketing ramp up is preparing for launch and all that comes with it.”

“Once launch occurs you can expect Bakkt leadership to be all over the airwaves and in front of TV cameras preaching the Bakkt gospel. And that can be characterized as the safety, custody, and daily use case ecosystem that Bakkt provides to investors. Kelly is uniquely qualified to tell that story and will be a media darling.”

More color on where Bakkt is headed once approval is finalized from sources we spoke with familiar with the firm. The Starbucks initiative is a 2020 project and will be carefully talked about in conjunction with reps at the behemoth coffee company. ‘Message discipline’ will be important with respect to Starbucks so as not to fall into the trap of overpromising and underdelivering.

At launch much more will be made of Bakkt’s familial connection to ICE and their technology partnership with Microsoft. Those will be highlighted early and often as they are trusted names amongst institutional investors and global investment banks.

Further, you can expect Bakkt to be more an more visible at larger financial and technology conferences of note. Also expect the Bakkt message to be spread in the largest of media organizations like the Wall Street Journal, New York Times, CNBC, Bloomberg and the like. Bakkt wants to build a lock-tight institutional seriousness around digital assets and the safety they plan to provide to investors. They believe keeping messaging to legacy outlets will send that message.

Messaging, optics, partnerships, adoption, safety, real-world use cases, ICE, Microsoft, Starbucks, and ‘more digital asset products to come’. Maybe Bakkt is the bear market slayer we all hope it to be?

EXCLUSIVE: ESTONIA: Over 1100 Virtual Currency Licenses Approved in 2018

The Estonian Financial Intelligence Unit (FIU) issued 529 virtual currency wallet service provider licenses and 595 virtual currency exchange service provider licenses in 2018, according to an e-mail received by Abacus Legal from the FIU.

The FIU estimates that the majority of the licenses were issued to foreign businesses. In addition, the FIU estimates that the majority of the firms applied for and received approval for both types of licenses simultaneously. 

Few Applications/Licenses Rejected or Revoked by the FIU

In 2018, the FIU rejected 24 virtual currency wallet service provider applications and 34 virtual currency exchange service provider applications. The FIU did not provide the reasons for the not approving the applications. Estonian law permits the rejection of applications if the applicant fails to submit the necessary documents or a member of the management body, procurator/agent, beneficial owner or owner was convicted of a criminal offense.

The FIU also revoked 12 wallet service provider licenses and 17 exchange service provider licenses.The FIU did not provide the reasons for the revocation of the licenses. Estonian law permits the revocation of a license if the applicant intentionally submitted incorrect information; the firm repeatedly fails to follow the precepts of the supervisory authority; or the firm has not commenced operation within six months.

Legal Certainty and Location Independent Business Practices Attract Virtual Currency Firms

Virtual currency companies find Estonia an ideal jurisdiction to conduct business for a wide-array of reasons. Estonia is one of the few European Union (EU) member states that have enacted legislation to explicitly regulate virtual currencies. This has provided virtual currency businesses with a high degree of legal certainty. 

The ease of establishing a company through the e-residency program, minimal documentation requirements for the licensing of a virtual currency firm, and expeditious licensing process also provide foreign businesses with a favorable domicile to establish an EU-wide presence.  

Draft AML Legislation Will Increase Operating Costs

Foreign virtual currency firms considering establishing a presence in Estonia should take into account an AML bill currently being drafted. The draft law imposes additional licensing requirements; requires firms to enhance customer due diligence procedures; and extends the application review process from 30 days to as much as six months.   

The draft law also requires companies registered in Estonia to have their place of business and head office in Estonia and companies not registered in Estonia are required to establish a branch in the country.   

After the legislation is enacted, a virtual currency firm that already has a license will be given six months to meet the new requirements. The FIU will revoke a firm’s license if it does not meet the requirements in six months. 

BAKKT BONUS: ACQUIRES ASSETS BEFORE APPROVAL: Bakkt Acquires RCG Assets To Bolster Platform Ahead Of CFTC Approval

Bakkt isn’t resting on its parent company laurels and hoping that the ‘largess’ associated with ICE will bring institutional customers by the buckets full. Instead they are continuing to smartly acquire customers via acquisition as well as staff – as per a Medium post made by their CEO, Kelly Loeffler.

Via Medium:

“To advance that effort, I’m pleased to share that we have entered into an agreement to acquire certain assets of Rosenthal Collins Group (RCG), an independent futures commission merchant with nearly 100 years of earning clients’ trust. In December, RCG announced the sale of all its customer accounts to Marex Spectron, one of the world’s largest commodity brokers. As part of that transaction, our aim was to purchase certain valuable assets related to developing our platform. We expect to close the transaction in February, and are excited to welcome members of the RCG team to Bakkt.”

“How does this advance our work? First, it will enhance our risk management and treasury operations with systems and expertise. Other aspects of the transaction will contribute to our regulatory, AML/KYC and customer service operations as we help enable digital asset acceptance by bringing more choice and control to buyers and sellers.”

“This acquisition underlines the fact we’re not standing still as we await regulatory approval by the CFTC for the launch of regulated trading in our crypto markets. Our mission requires significant investment in technology to establish an innovative platform, as well as financial market expertise to deliver the most trusted fintech ecosystem for digital assets.”

It is not entirely clear what Bakkt has really purchased here, other than mention of ‘customer accounts’ in the dialogue above. That would be an interesting move to drive scale upon launch and provide the markets with volume from day one on their platform.

The staff that comes along with the acquisition will be on interest as to how many were acquired, who stays, and who does not.

A note (as we always do when reporting on Bakkt) as to what Bakkt is set to launch, and why it is seen as a potential bear market buster:

“Bakkt is designed to enable consumers and institutions to seamlessly buy, sell, store and spend digital assets. Formed with the purpose of bringing trust, efficiency, and commerce to digital assets, Bakkt seeks to develop open technology to connect existing market and merchant infrastructure to the blockchain.”

“As an initial component of the Bakkt offering, Intercontinental Exchange’s U.S.-based futures exchange and clearinghouse plan to launch a 1-day physically delivered Bitcoin contract along with physical warehousing on December 12, 2018, after receiving CFTC review and approval. These regulated venues will establish new protocols for managing the specific security and settlement requirements of digital currencies. In addition, the clearing house plans to create a separate guarantee fund that will be funded by Bakkt.”

GOLDMAN SACHS: OTC WHALES: Goldman Sachs Has Been Handling Billions Worth Of OTC Trades; “Buy-side volume in 2019 is increasing…”

Goldman Sachs hasn’t been exceptionally coy about their involvement in the crypto markets. Specific to Bitcoin, from a volume standpoint, Goldman Sachs is one of the (if not THE) largest facilitators of OTC trades in the world. They routinely generate more than a billion in OTC trades on a quarterly basis; if the numbers given to us for Q4 are accurate.

Lending credibility to the belief that UHNW individuals, family offices, hedge funds, and other financial entities of scale are trafficking in Bitcoin. Buying, selling, holding in cold storage, wallet to wallet – Bitcoin is increasingly a vehicle for wealth ‘store of value’ in an uncertain global economy.

Speaking with two sources at Goldman Sachs who are facilitators in the OTC markets and aware of Goldman’s ability to broker transactions – it is clear that Bitcoin has begun to resonate with investors as ‘digital gold’.

One source had this to say: “Understand that Goldman banks a huge portion of UHNW families that trust the firm to make the right calls. Those families have seen Goldman invest in Circle and other Bitcoin-related firms and are increasingly comfortable with the digital currency. The narrative that is ‘bitcoin is digital gold’ has begun to take hold in the minds of investors. This has led to increased volumes late in 2018 and throughout the beginning of 2019. And if the global economy continues to soften, expect those volumes to continue to increase.”

The second source we spoke to over the weekend said the following: “OTC volumes have increased across the board. Global economic uncertainty and a ‘flight to safety’ now includes Bitcoin. That is why you are seeing an increase in volume year over year, and again to start 2019. Goldman is a MAJOR player here. They’ve got ‘first mover’ privileges at Circle, because of their equity stake in the firm, so they are more effective from a pricing standpoint than other large bank facilitators. Their clients know this and it breeds confidence in the firm as a safe place to funnel investment dollars into digital assets.”

Several media outlets have published OTC volumes ranging in the billions on a daily basis and the feedback amongst those ‘in the know’ regarding Goldman’s involvement would echo those numbers.

OTC trading has begun to significantly outpace exchange volumes as larger investors (whales) increasingly prefer to trade with a perceived air of invisibility, while avoiding pushing the markets one way or the other.

Speaking to a crypto focused firm in New York late last week they commented on the strength of their $BTC OTC operations and its growth over the past 90 days. Specifically, increased volume on the buy-side.

And it isn’t just UHNW individuals doing the buying. Shadow crypto trade desks at firms like State Street, Morgan Stanley, etc are buying $BTC in volume as well. They are simply stopping short of drafting press releases to tell the world about it.

As the tail of the bear market lengthens, smart money sees $BTC as an accumulation opportunity. Don’t be surprised, once the regulatory framework in the US is sufficiently clear if these firms begin to disclose the breadth and depth of their involvement in the crypto space.

It may surprise all of us.