Investment banks set to soften stance on crypto

A look at reported changes in the attitudes of investment banks towards cryptocurrencies.

Cryptocurrency is increasingly being tipped for adoption in the institutional financial markets and infrastructure is being readied for some of the biggest players to enter.

The TRADE Crypto recently took a look at the stances of asset managers and their actions around cryptocurrencies. This week we are looking at how the sentiment of investment banks has changed over time.

Rewinding to 2014 after the collapse of bitcoin exchange Mt Gox, it was reported that analysts at Goldman Sachs viewed Bitcoin as a commodity rather than a currency with the investment bank classifying Bitcoin as a “speculative financial asset”. Several years later, Goldman CEO Lloyd Blankfein went on to say in an interview with Bloomberg that Bitcoin is a “vehicle to perpetrate fraud” and, in reference to crypto, “Life must be really, really rosy if this is what we’re talking about.”

As recently as September 2017, JP Morgan CEO Jamie Dimon was extremely critical of cryptos. “Bitcoin is a fraud” and “everything will eventually blow up,” he stated in a CNBC interview. Just two months later, Morgan Stanley CEO James Gorman claimed, “Bitcoin doesn’t deserve the attention that it’s getting.” He added that, “Anybody who thinks they’re buying something that’s a stable investment is deluding themselves.” At the same time, Merrill Lynch reportedly banned its advisors from buying any bitcoin-related investments for its clients.

Earlier this year, HSBC CEO John Flint was keen to praise blockchain and distributed ledger technology, but still remained skeptical about crypto currencies due to reasons of anonymity in the market place. While less vocal on the topic, BAML did say in a regulatory filing that it was concerned about cryptocurrencies.

Of the remaining big 10 investment banks, according to CoinTelegraph in May, UBS said it will not offer its customers trading in Bitcoin and other cryptocurrencies, with its chairman echoing others by describing them as “highly speculative investment vehicles”.

We did not find concrete information from Deutsche Bank and Credit Suisse on their thoughts on digital assets. The former does, however, have a page on its website dedicated to cryptocurrencies and blockchain.

A broader change in attitudes may nevertheless be in the offing. Despite negative commentary from some high-level executives, many of the world’s largest investment banks are now looking at participating in the market in various ways.

In April, Bloomberg reported that Barclays has been “gauging clients’ interest in starting a cryptocurrency trading desk”  and  “potentially joining Goldman Sachs in pioneering a new business on Wall Street.” Also in April, Business Insider reported that Citigroup was looking to hire Bitcoin staff to explore risks associated with money laundering. In that same month, JP Morgan appointed 29-year old Oliver Harris to a newly created position as head of crypto assets strategy to explore new crypto-based projects.

Two months ago, the ICO journal reported Morgan Stanley is planning a foray into the crypto space and is even adding a specific trading desk designated for exclusively institutional crypto trades

While Blankfein and Jamie Dimon have not openly retracted their prior statements, Blankfein has now suggested, “It’s too arrogant to say (bitcoin) won’t have a future”, while Dimon claimed to regret his initial comments classifying bitcoin as a fraud. In September 2018, meanwhile, Goldman Sach’s operating chief David Solomon – thought of as more ‘crypto-friendly’ – will take over the helm from Blankfein.

Much like their asset management counterparts, some of these investment banks are exploring cryptocurrencies but not necessarily with any intent to trade them. As we noted about many of the major buy-side institutions, the reality is that in mainstream financial markets, any kind of investment phenomenon will at least be investigated in some way or another. Signs are, however, that engagement with digital assets by investment banks is no longer off the table.