Goldman Sachs (GS) To Foray Into Digital Currency Market

Goldman Sachs (NYSE:GS) has plans to enter into the lucrative digital currency market. CEO David Solomon, in an interview to the French newspaper Les Echos last week, said that the company “absolutely” intends to launch its own cryptocurrency.

Solomon further stated, “Assume that all major financial institutions are looking at the potential of tokenization, stable coins and frictionless payments.” This is expected to lower costs and help serve the clients better.

Goldman is undertaking “extensive research” on tokenization and stable coins. Further, Solomon believes that the future of payment systems will likely be based on blockchains.

Earlier in February, JPMorgan (NYSE:JPM) became the first bank to launch its own cryptocurrency called the "JPM Coin", which will help its corporate clients to instantly settle payments between themselves. (Read more: JPMorgan Plans to Launch "JPM Coin" Using Blockchain).

Additionally, last month, Facebook (NASDAQ:FB) revealed its plan to create a new digital currency “Libra” and digital wallet Calibra. The social media giant expects to launch these in the first half of 2020.

Notably, Solomon declined to comment on whether Goldman has been in talks with Facebook about the potential partnership between the two. He stated that it is too early to decide on which platform the company’s digital currency will be launched.

During the interview, when asked about threat of other tech companies, including Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) venturing in to the financial payments industry, Solomon commented that these tech companies will likely seek partnership with banks rather than entering the highly regulated banking sector.

Hence, financial institutions are less likely to face competition from the entry of tech companies in the finance industry. Nonetheless, banks and other finance sector companies will have to remain innovative and align businesses according to client demand and upcoming new technological advancement.

At present, regulators across the globe are divided on the role that cryptocurrency might play in the financial markets. There are several restrictions imposed on these. Nonetheless, with gradual entry of the banks in the crypto markets, regulators are expected to make changes in rules.

Our Take

Goldman’s plan of launching cryptocurrency will likely further diversify its revenue base. The company has been trying to digitize operations for quite some time. In 2016, it had launched online bank – Marcus by Goldman – which has been delivering promising results.

Amid disappointing capital markets performance, Goldman’s efforts to diversify will support profitability.

The stock has rallied 19% over the past six months, outperforming the rise of 6.4% for the industry it belongs to.



Goldman currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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