LONDON: Barclays Plc has been gauging clients’ interest in the British bank starting a cryptocurrency trading desk, potentially joining Goldman Sachs Group Inc. in pioneering a new business on Wall Street, according to people with knowledge of the matter.
Barclays has so far only done a preliminary assessment of demand and feasibility, said the people, who asked not to be identified because the information isn’t public. The bank said Monday it currently has no concrete plans to start such an operation.
“We constantly monitor developments in the digital currency space and will continue to have a dialog with our clients on their needs and intentions in this market,” spokesman Andrew Smith said in an emailed statement.
A crypto trading desk would require approval from investment bank boss Tim Throsby, and potentially Chief Executive Officer Jes Staley, given the novelty of the asset class, risk and compliance requirements, according to one of the people. No other big European investment bank is known to be building such a desk.
Staley has made building up Barclays’s investment bank the centerpiece of his strategy to revive earnings. In September, Throsby vowed to reignite the unit’s “commercial zeal” and authorized the transfer of billions of dollars of capital to higher-risk trading activities from vanilla corporate lending. Bitcoin -- infamous for its wild price swings after rising to a peak of more than US$19,000 in December before halving in value within four months -- could fit the bill.
Demand for such services is plentiful. Hedge funds that deal with Bitcoin and other virtual currencies have been eager to find banks to handle transactions -- much like prime brokers do with securities -- and potentially serve as custodians of digital assets. Some money managers have struggled to expand into crypto, in part because of rules that prevent them from using unregulated exchanges to trade and hold investments.
The number of hedge funds focused on crypto reached 226 in mid-February, according to Autonomous Research, up from 37 at the start of 2017. Many were formed or piled into the market as Bitcoin’s price skyrocketed last year.
For now, a few big Wall Street firms let customers bet on Bitcoin through futures contracts offered by CME Group Inc. and Cboe Global Markets Inc., though such investments can be expensive, undercutting returns. Additionally, some banks have demanded clients set aside collateral equal to 100 percent of the value of their trades.
Goldman Sachs is setting up a trading desk to make markets in digital currencies such as Bitcoin, which it hopes to get up and running by late June, if not earlier, people with knowledge of the matter said in December. But to do so, it still has to work out security issues including how to custody assets.
Last week, a team of Barclays analysts led by Joseph Abate laid out a pricing model for Bitcoin that wasn’t exactly bullish, treating it like a disease and predicting it’s probably on the decline.
The model divided the pool of potential investors into three groups: susceptible, infected and immune. The analysts assumed that when prices rise, “infections” spread by word-of-mouth. But at some point, the number of potential hosts would be used up, causing prices to plateau before eventually falling.
“The most recent peak may have been the ultimate top,” they wrote. “The speculative froth phase of crypto currency investment, and perhaps peak prices, may have passed.” - Bloomberg
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