Goldman Sachs Crypto Trading Plan On Hold While SEC Mulls Security Risks

Goldman Sachs Group's head of digital asset markets said Tuesday the investment bank was not any closer to offering cryptocurrency trading services as regulatory barriers prevented it from holding cryptocurrency assets. Justin Schmidt said the bank's clients were "quite curious" about crypto prices and its security options, but he added "things are more limited in terms of what we can offer" in terms of the regulatory standpoint.

“One of the things they ask me is ‘Can you hold our coins?’ and I say ‘No, we cannot. One of the things we have to take into consideration when we’re building out our business is what we can and cannot do from a regulatory perspective," Schmidt said during a conference in New York, Bloomberg reported.

Speculation surrounding Goldman Sachs interest in offering cryptocurrency services has been in news for quite some time now. However, there have been no official announcements confirming anything concrete. In September, bitcoin and few other cryptocurrencies prices fell sharply following the news of the investment bank discarding its plans of opening a trading desk for cryptocurrencies. Goldman Sachs later said it never had a plan to start such a trading desk.

“What I really want to see is the continued research and development of actual products and services. In many ways, the rampant speculation that has been quelled over the past several months is really healthy for the ecosystem and I very much look forward to companies that are actually providing institutional-grade products and services," Bloomberg reported Schmidt speaking at the conference.

From the regulators' perspective, Securities and Exchange Commission Chairman Jay Clayton said Tuesday he had a few concerns that needed to be addressed before he was "comfortable" to approve a bitcoin ETF (exchange traded fund). The agency has already rejected several applications for a cryptocurrency ETF, citing risks of fraud, market manipulation, and the challenge of protecting investors.

These concerns include market surveillance, custody services, and security issues. "What investors expect is that trading in the commodity that underlies that ETF makes sense and is free from the risk of manipulation. It's an issue that needs to be addressed before I would be comfortable," Clayton said at the Consensus Invest Conference in Manhattan, New York, CNBC reported Tuesday.

Speaking about custody services, Clayton said how to store crypto assets was a major barrier.

"We've seen some thefts around digital assets that make you scratch your head. We care that the assets underlying that ETF has good custody and that they're not going to disappear."

Custody services for crypto assets are offered by traditional financial companies. Fidelity said in October it would launch a separate company to manage cryptocurrency custody and trade execution for institutional investors. Crypto companies like Coinbase and Gemini are working on providing custodial solutions. Despite the prospects, Clayton said the custody offerings still "need to be improved and hardened."

The SEC has penalized multiple cryptocurrency projects that failed to register itself with it. Early in November, the SEC had taken enforcement action against a cryptocurrency exchange for possible violation of securities laws. The Commission charged Zachary Coburn, the founder of EtherDelta — an ethereum-based digital token trading platform — based on an SEC investigation that found EtherDelta operating as an unregistered national securities exchange.

Shares of Goldman Sachs Group closed 0.36 percent lower Tuesday on the New York Stock Exchange, though they gained 0.28 percent in after-hours trade. The overall NYSE Composite Index closed with a rise of 0.053 percent Tuesday. Bitcoin price at 4 a.m. EST Wednesday ws a little above $4,000, seeing a rise of 7 percent in 24 hours.