Amid Bitcoin Uncertainty, ‘the Smart Money Knows That Crypto Is Not Ready’

Chou came from one of those institutions, Goldman Sachs, and created a cryptocurrency exchange, LedgerX, that would cater to big investors with sophisticated financial contracts. Now, in the wake of last year’s Bitcoin crash, Mr. Chou is being forced to confront how few of the big finance companies acted on their cryptocurrency plans. “It was definitely part of the original plan that institutions would be a big part of this market,” he said. “We were wrong.”

Goldman Sachs said it was opening a Bitcoin trading operation to serve clients. The parent company of the New York Stock Exchange has been forced to delay the opening of the cryptocurrency exchange it announced last year, and there is still no clear sign of when it will get the approval needed from regulators. The exchange declined to comment. And the Chicago Board Options Exchange said last month that it was going to stop offering a Bitcoin trading contract that it started with great fanfare in late 2017. The faltering efforts among big financial outfits are part of a retrenchment in the cryptocurrency industry after last year’s bust, when the price of a single Bitcoin fell from nearly $20,000 to around $4,000. It has lingered there for months, but had an unexpected jolt on Tuesday, briefly exceeding $5,000. But their struggles — and waning interest — illustrate the difficulty in bringing Bitcoin from the fringes of the internet into the mainstream financial world. Image
“It was definitely part of the original plan that institutions would be a big part of this market,” Mr. “We were wrong.”CreditNathan Bajar for The New York Times

“The smart money knows that crypto is not ready,” said Ciaran Murray, a cryptocurrency trader in London. Murray tried to set up a hedge fund focused on digital tokens, but he found that when investors dug into the technology they were turned off. Chou, for example, is retooling LedgerX and applying for regulatory approval to open trading to small retail investors, whose interest in cryptocurrencies has held up a bit more. Goldman and the parent company of the New York Stock Exchange, Intercontinental Exchange, are moving ahead with their cryptocurrency trading operations despite tepid interest from customers. The giant asset manager Fidelity recently began working with a small number of big clients that want to hold cryptocurrencies. In Silicon Valley, Jack Dorsey, the chief executive of Twitter and the online payments company Square, announced last month that he was looking to hire three or four Bitcoin developers. He compared the technology to the early internet, both in its problems and its potential. Even in this “crypto winter,” as some are calling it, the depressed price of Bitcoin is still four times higher than it was at a peak in 2013, before an earlier crash. An American company looking to set up Bitcoin investment funds, Bitwise Asset Management, recently said it had determined that 95 percent of the trading activity reported by Bitcoin exchanges around the world was fake. The structure of Bitcoin makes it hard to maintain control. All Bitcoins are accounted for on a decentralized ledger, known as the blockchain, which no single institution controls. Regulators have not approved investment products tied to Bitcoin because of the likelihood that prices are being manipulated. But exchanges where investors can bet on the price movement of Bitcoin through futures contracts, without having to hold Bitcoins, have gained approval. Outside Goldman’s headquarters in New York. The firm said last year that it was opening a Bitcoin trading operation, but client interest has been weak.CreditSpencer Platt/Getty Images

The Chicago Mercantile Exchange, or C.M.E. has introduced a Bitcoin futures contract that has gained moderate traction with traders. Goldman Sachs also said last year that it was hoping to allow its customers to buy and hold Bitcoins. For most traditional investments, like stocks or bonds, there are clearly established methods for securing customer accounts. Many Bitcoin enthusiasts have argued that the original cryptocurrency is useful as a place to store value outside the control of any government or institution, as if it were a digital version of gold. And other applications for Bitcoin, like using it to pay for things online, have not taken off. “I think it will be years and years before it will be ready for nonspeculative use cases,” Mr. Murray said. “Until now, it’s just been people buying it and hoping it’s going to go up. I think that’s not going to end for three or four years.”