Goldman Sachs’s U-Turn with Digital currencies has stunned everyone
A 22-year-old Wall Street Veteran, says, Bitcoin could be rehypothecated
A new head of Digital Asset at Goldman Sachs is a London based Repo Trader
Goldman Sachs Strategic 180 Degree Shift
Goldman Sachs told that cryptocurrencies like Bitcoin are not asset classes on which one can invest in developing fiat-backed cryptocurrency. In fact, a new update is making headlines that the Goldman Sachs New Digital Asset Head, Mathew McDermott is a London based Repo Trader.
To all those who aren’t aware of, a repo trader is generally a dealer who sells government backed securities and buys them back in some days at higher price.
However, the fact is that Goldman Sachs is one of the investors behind a blockchain and a crypto-based company like Circle. Per the latest report, they are developing fiat-backed cryptocurrencies with a repo trader, Mathew McDermott as its head. However, Goldman in its previous statement issued warnings on the risks involved in cryptocurrencies and also advised their clients to not invest in them.
Bitcoin May be Used for Rehypothecation
Rehypothecation is where the banks or brokers use the customer’s property kept as collateral for their own purpose. However, the necessary interest rates would be applied.
Caitlin Long, Founder, and CEO of Avanti Financial Group, recently shared her analysis on the appointment of the new head of Digital Asset of Goldman Sachs. She states that Mathew McDermott is a Repo trader and also explains its significance. According to the 22-year-old Wall Street Veteran, Bitcoin could now be rehypothecated.
She further explains that this may not impact the price but the gap between the real demand and artificially created supply would reduce. As Bitcoin cannot have a lender with last resort, rehypothecation could not work well with it.
On the other hand, Goldman Sachs is considering issuing stable coin which will be backed by 100 percent risk-free assets, which cannot be hypothecated and conserved from bankruptcy.
“It’s DANGEROUS to put a finite-quantity, volatile asset that has no lender of last resort onto a leveraged balance sheet, & then to leverage that asset. Big potential, “ said Caitlin
Possible Impact on Bitcoin
Goldman Sachs’s move has left the crypto space astonished. Hypothecating Bitcoin could mean that banks could pump the digital higher than normal which would raise the value of legit, self-custodial BTC. Conversely, Bitcoin could change the accounting practices, with the keys, it would be easy to identify to whom the balance sheet belongs to.
Banks are now quietly moving towards blockchain-based technologies like stablecoins. Recent example is JP Morgan, which gets bullish on the crypto ecosystem which previously used to oppose. But as per Caitlin, the friendly UK laws that do not limit the rehypothecation of customer’s title could probably change the financial system in terms of digital assets.
Therefore now when big banks are into crypto game, there would be more liquidity. Also, there can be pullback in the financial space. Moreover, the educative approach could help people keep their eyes wide open with the risk involved within.