It’s always intriguing to see where traditional finance intersects with the burgeoning world of cryptocurrency. Having spent time at Goldman Sachs, I’ve witnessed firsthand the firm’s evolution and its approach to new financial frontiers. While my personal journey led me away from investment banking, and I maintain a healthy skepticism towards some of the more exuberant claims in the crypto space, the recent news of Goldman Sachs venturing into Bitcoin trading has certainly piqued my interest. It’s precisely the kind of complex, slightly unconventional project that grabs attention – a deep dive into the fascinating realm of “Money Stuff.”
In a step that is likely to lend legitimacy to virtual currencies — and create new concerns for Goldman — the bank is about to begin using its own money to trade with clients in a variety of contracts linked to the price of Bitcoin.
While Goldman will not initially be buying and selling actual Bitcoins, a team at the bank is looking at going in that direction if it can get regulatory approval and figure out how to deal with the additional risks associated with holding the virtual currency.
These words, particularly phrases like “regulatory approval,” “additional risks,” and “variety of contracts,” resonate deeply with anyone familiar with the intricacies of investment banking. One of the most compelling aspects of working in that environment is navigating the intricate web of legal, regulatory, tax, and market risks to facilitate complex financial transactions. It’s about understanding a client’s financial needs and meticulously crafting a solution that is both legally sound and commercially viable. The prospect of applying this skillset to the nascent Bitcoin market is undeniably captivating.
In the next few weeks — the exact start date has not been set — Goldman will begin using its own money to trade Bitcoin futures contracts on behalf of clients. It will also create its own, more flexible version of a future, known as a non-deliverable forward, which it will offer to clients.
Building bespoke over-the-counter (OTC) Bitcoin derivatives within a established financial institution like Goldman Sachs is a remarkable undertaking. The internal discussions and approvals required for such an initiative must be fascinating. Even within Goldman, there seems to be a balanced perspective, acknowledging both the potential and the risks:
Rana Yared, one of the Goldman executives overseeing the creation of the trading operation, said the bank was cleareyed about what it was getting itself into.
“I would not describe myself as a true believer who wakes up thinking Bitcoin will take over the world,” Ms. Yared said. “For almost every person involved, there has been personal skepticism brought to the table.”
This sentiment is crucial when venturing into new financial territories. Skepticism, coupled with a rigorous analytical approach, is essential for managing risk and ensuring responsible innovation in finance.
We often discuss the increasing “boringness” of banking in the post-crisis regulatory landscape. This “boringness” isn’t about a lack of intellectual challenge, but rather a shift towards minimizing risk and focusing on efficiency in established product lines. Regulations, while necessary, can inadvertently stifle the pursuit of novel financial solutions. However, a Bitcoin trading desk at Goldman Sachs is anything but boring. It represents a foray into uncharted territory, demanding innovation in product development and risk management, all within a highly volatile market. It’s ironic, perhaps, that Bitcoin, initially conceived as a challenge to the traditional banking system, might be the catalyst for injecting excitement back into institutions like Goldman Sachs. This is definitely some interesting “money stuff” to watch unfold.
Crypto Clashes and “Money Stuff” Mayhem
The broader crypto world continues to be a source of both innovation and, let’s be honest, considerable drama. Consider the recent crypto panel at the Milken Institute Global Conference, described as a descent into “shouting and crosstalk.” Nouriel Roubini’s pronouncements of “bullsh*t” clashed with crypto proponents in what sounds like a truly chaotic, yet undeniably entertaining, display of contrasting viewpoints.
“Billed as a sober discussion to a ballroom where every seat was filled, the panel meandered into shouting and crosstalk,” with Nouriel Roubini saying things like “All this talk of decentralization is just bullsh*t” and a crypto guy telling Roubini “Why don’t you buy one coin, then you can tell us how it works.” (Nocoiner!)
Even a representative from the U.S. Treasury felt compelled to jokingly threaten regulation of the panel itself, highlighting the passionate and often volatile nature of discussions surrounding cryptocurrency and “money stuff.”
“I may need to step in and regulate this panel,” said Brent McIntosh, general counsel for the U.S. Treasury and another panel participant.
Then there’s the curious case of Telegram’s initial coin offering (ICO), reportedly canceled due to overwhelming private investment. Raising $1.7 billion from a small group of investors before even reaching the public demonstrates the immense, and sometimes irrational, appetite for crypto ventures.
The popular messaging app Telegram has brought in so much money from a small group of private investors that it is calling off a planned sale of cryptocurrency to the wider investing public, according to a person familiar with the matter.
Telegram Group Inc. has pulled in $1.7 billion by selling newly created cryptocurrency to fewer than 200 private investors.
The evolution of ICOs is another fascinating area of “money stuff.” From unregistered offerings to those restricted to accredited investors, and the SEC’s growing scrutiny, the path towards regulated, mainstream token offerings is still being paved. Perhaps Goldman’s Bitcoin desk will indeed lead the charge in legitimizing and structuring these new forms of fundraising, potentially even mirroring the processes of traditional IPOs.
Venezuela’s Petro cryptocurrency also remains a persistent, if somewhat perplexing, element of the crypto landscape. The concept of a national cryptocurrency backed by oil reserves is certainly novel, and Venezuela’s attempts to incentivize its use, such as offering India a discount on oil for Petro payments, continue to raise eyebrows.
Venezuela has offered India a 30-percent discount on crude oil purchases, but only if India agrees to pay in El Petro, the cryptocurrency that Venezuela is touting as the first national digital currency backed by crude oil reserves, the Indian outlet Business Standard reports.
While skepticism around the Petro’s true backing and viability persists, the mere attempt to integrate cryptocurrency into international trade and finance is noteworthy “money stuff.” If Venezuela successfully transacts oil for Petros, it would challenge some of the prevailing doubts about its legitimacy, even if questions about its fundamental value remain.
The Exclusive World of ISDA Agreements and Personal “Money Stuff”
Moving beyond crypto, let’s delve into the more rarefied world of International Swaps and Derivatives Association (ISDA) master agreements. For individuals, possessing an ISDA with a major bank is less about practical necessity and more about status. It signifies entry into an exclusive club of sophisticated financial players.
Their ranks are getting more selective. While no one keeps count, people in the industry guesstimate that the total peaked at no more than 3,000 a decade ago and has shrunk considerably since the financial crisis. Months of interviews have yielded the identities of just 12 individuals who held the prize: an ISDA master agreement.
Beyond the status, an ISDA allows individuals to engage in over-the-counter (OTC) derivatives trading with large banks. While this can be advantageous for sophisticated investors, it also comes with higher costs compared to institutional clients. Having a personal ISDA suggests substantial wealth, likely earned in finance, and a deep understanding of derivatives. It could also, perhaps, simply indicate a penchant for high-stakes financial entertainment.
Consider the example of Guido Filippa, who used an ISDA to hedge interest rate risk on his London mortgage.
After taking out a floating-rate mortgage on a house in Kensington, London’s most expensive borough, Guido Filippa signed an ISDA contract with Goldman Sachs to protect against rising interest rates.
Filippa, 45, said he obtained the agreement via Goldman’s private-wealth management unit while working as a managing director in the bank’s London office. He entered into a 10-year interest rate derivative that required him to pay an upfront premium of about 4 percent of the value of the mortgage, while the bank is required to pay him every quarter that a benchmark of interbank borrowing costs is above a pre-defined level.
This illustrates the complex and sometimes personalized “money stuff” that high-net-worth individuals can access through private wealth management and instruments like ISDAs. While I personally opted for a simpler 30-year fixed-rate mortgage to manage interest rate risk, the allure of customized derivatives solutions, even without an ISDA, is understandable for those deeply immersed in the world of finance.
McClatchy, CDS Markets, and “Money Stuff” Dilemmas
Shifting gears to corporate finance “money stuff,” the McClatchy Co. refinancing situation highlights some interesting dynamics in credit default swap (CDS) markets. McClatchy’s CFO, Elaine Lintecum, aptly pointed out that her fiduciary duty lies with the company and its shareholders, not with CDS market participants.
“We didn’t enter this deal to hurt the CDS market,” Elaine Lintecum, the chief financial officer of McClatchy, said in an interview. “I don’t have a fiduciary duty to the CDS market. Those betting against the company in the CDS market have a motivation to hurt McClatchy and its shareholders.” …
“No one has approached me with another deal,” Lintecum said. “Any other offers of a deal that would come to McClatchy, we would evaluate those and do what’s in the best interest of our shareholders.”
This raises a fundamental question: what obligation, if any, do companies have to CDS markets? CDS are essentially side bets on a company’s creditworthiness, often transacted without the company’s direct involvement. If a company can leverage the CDS market to reduce its borrowing costs, why shouldn’t it? The integrity of the CDS market is a broader concern, but the immediate incentive for a company is to secure the most favorable financing terms for its shareholders. This tension between corporate self-interest and market integrity is a recurring theme in “money stuff.”
Tech Governance, Elon Musk, and “Money Stuff” Volatility
In the realm of tech company governance, Elon Musk’s recent earnings call with Tesla analysts provides a stark example of unconventional leadership and “money stuff” volatility. Musk’s dismissive attitude towards analyst questions about capital requirements and Model 3 reservations, labeling them “boring” and “bonehead,” sent Tesla’s stock plunging.
“And so where specifically will you be in terms of capital requirements?” Sacconaghi said.
“Excuse me. Next. Next,” Musk said to the call operator. “Boring, bonehead questions are not cool. Next?”
“I think that if people are concerned about volatility, they should definitely not buy our stock,” Musk replied. “I’m not here to convince you to buy our stock. Do not buy it if volatility is scary. There you go.”
Musk’s approach is a bold, if unorthodox, assertion of managerial prerogative. He seems to be suggesting that shareholders who are uncomfortable with volatility or unconventional management styles should simply not invest in Tesla. While shareholders typically expect management to be accountable and responsive, Musk appears to be redefining this relationship, prioritizing his vision and long-term goals over short-term market pressures. This “take-it-or-leave-it” approach to investor relations is certainly a unique form of “money stuff” in the public markets.
In contrast, Mark Pincus of Zynga is taking a different governance path, converting his high-vote stock to low-vote stock, citing concerns about dual-class share structures.
“We think the company doesn’t benefit anymore from a multiclass structure,” Mr. Pincus said.
This move, while less dramatic than Musk’s approach, also reflects evolving perspectives on corporate governance and “money stuff.” Even founders with significant control recognize the need to balance their vision with broader shareholder interests and market expectations.
Sports Betting, Arsenal, and “Money Stuff” Losses
Finally, a lighter note in the world of “money stuff”: the struggles of Arsenal, the English soccer team, are apparently so profound that they are impacting bookmakers’ revenues. Paddy Power Betfair reported that Arsenal’s losses contributed to weak first-quarter revenues because fans, disheartened by their team’s performance, were betting less.
Losses by Arsenal and other teams were one of the factors behind weak first-quarter revenues at Paddy Power Betfair, the U.K.-based gambling group. Problem is, fans like to bet on Arsenal and they like to win their bets occasionally. When they do they are more likely to recycle those winnings into more bets, especially in online accounts.
Paddy Power said Wednesday that too many house wins had put fans off betting …
This illustrates the interconnectedness of seemingly disparate areas of “money stuff”—sports, betting, and even financial markets. Fan sentiment and team performance can directly translate into betting behavior and, consequently, financial results for gambling companies. It’s a reminder that “money stuff” encompasses a broad spectrum of human activities and emotions.
Concluding “Money Stuff” Thoughts
From Goldman Sachs venturing into Bitcoin trading to Elon Musk’s unconventional investor relations and Arsenal’s impact on sports betting, the world of finance is constantly evolving and full of surprises. Whether it’s the complexities of crypto markets, the exclusivity of ISDA agreements, the dilemmas of CDS markets, or the volatility of tech stocks, “money stuff” continues to be a captivating and multifaceted subject. Staying informed and critically analyzing these developments is crucial for navigating this ever-changing landscape. And while the specifics may shift, the underlying principles of risk, reward, and human behavior remain constant in the fascinating world of “money stuff.”
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