Wall Street thinks bitcoin and its cryptocurrency ilk are a) bad news or b) an opportunity. Answer: maybe both.
This cognitive dissonance is jarring. Financial firm chieftains have voiced skepticism and downright hostility toward bitcoin. Meanwhile, several of the houses they command are getting involved with cyber money or are thinking about it.
No one doubts that bitcoin and other cryptocurrencies -- which tout their digital speed, cost-savings, privacy and freedom from central banks and Wall Street intermediaries -- are in vogue lately, and also are very volatile. After a dizzying rise this year,last week by almost 30 percent before recovering many of its losses.
That's made for an interesting dynamic on Wall Street. Consider:
Lloyd Blankfein, chief executive officer of Goldman Sachs (GS), said on Bloomberg Television Nov. 30 that now was too soon to adopt a bitcoin strategy and its volatility worried him. Once the concept was more established, he said, "we'll get to it." Well, that didn't take long: Reports emerged in Bloomberg News last Thursday that Goldman is setting up a cryptocurrency trading desk.
Jamie Dimon, CEO of JPMorgan Chase's (JPM) has labeled bitcoin a "fraud" and declared that if any of the bank's traders bought or sold the stuff he'd "fire them in a second." Turns out that, according to the Wall Street Journal, JPMorgan is looking at giving clients access to bitcoin futures via the CME Group's new trading platform. And the firm reportedly had bought some of Bitcoin XBT, an exchange-traded note listed in Sweden.
The head of Morgan Stanley (MS), James Gorman, had been more measured on the subject of digital currencies. In September, he said that he hadn't invested in bitcoin and that it is "highly speculative." Nevertheless, the concept was "more than just a fad," he noted. In November, he put aside any misgivings and the firm bought an 11.4 percent stake in online retailer Overstock.com (OSTK), which has accepted bitcoin since 2014, but more importantly has launched a trading operation for the currency, called tZERO.
Overstock's CEO, Patrick Byrne, said no one at Morgan Stanley had told him why they had invested in the company, but speculated "they'd be smart to hedge their bets" with bitcoin. The new currency, he said, threatens to disrupt the business of the six prime brokerages, which includes Morgan Stanley. These are large institutions that provide services to hedge funds and other financial players.
Morgan Stanley wouldn't discuss the nature of its interest in Overstock and only would confirm its purchase of the company's shares. Goldman and JPMorgan didn't return requests for comment.
The opposition to bitcoin and its brethren among financial big wigs is palpable. Warren Buffett, the world's most famous investor, said, "Stay away from it. It's a mirage." Tidjane Thiam, CEO of Credit Suisse Group (CS), called it "the very definition of a bubble." John Bogle, founder of Vanguard Group, said, "Avoid bitcoin like the plague. Did I make myself clear?"
So how can places like Goldman, whose leaders express hostility or at least caution toward bitcoin, preside over businesses that are getting on board with it, or thinking about doing so?
Because these CEOs have a different mindset than underlings in their firms who are open to new things, in the estimation of David Mondrus. He heads Trive, a company that seeks to disprove Web-based fallacies and is a long-time observer of the disruptive effect of tech on commerce.
"These CEOs' job is to maintain the status quo, but bitcoin shows we don't need banks and brokerages," he said. "And within their huge organizations are innovators who are looking for disruptive change."
Or it may be, as Overstock's Byrne puts it, that behemoths such as Goldman and JP Morgan are wise to see what's out there, just in case. "Jamie has his personal opinion," said Elliott Prechter, head of computer analysis at Elliott Wave International, a research concern, referring to the JPMorgan CEO. But big companies also are "slaves to the trend."
Prechter thinks that bitcoin's heady days are numbered, although he expects the snazzy technology behind it, called blockchain, will live on as companies and people value cybersecurity tools more and more. Perhaps bitcoin will give way to some better contender, he said, much like MySpace did to Facebook (FB).
Should that happen, what will Wall Street CEOs say and do then?