Trading Bitcoin on Wall Street

Bitcoin logo on a line graph

 Getty Images/ET-ARTWORKS

The big boys and girls on Wall Street are dipping their toes into Bitcoin, and they're looking at creating a big-player Bitcoin stock market. It’s an interesting development for a rebel technology that prides itself on no central control.

That’s because for the decade that Bitcoin has been in existence––it was developed in response to the 2008 financial crisis––it’s been mostly ignored, snubbed and even shut down by the big players on Wall Street.

But there are rumblings that this “ignore it and it will all go away” attitude could be changing.

Goldman Sachs announced in May 2018 that it was opening a Bitcoin trading desk, but in early August 2018 concurrent with the dramatic decline of Bitcoin prices, they also announced that they aren’t “sold” on the virtual currency. That’s some mixed signals and it’s hard to say where exactly they stand at this point.

However, this type of back-and-forth with established players isn’t terribly unusual for new technologies. After all, Goldman Sachs was founded in 1869, and Bitcoin has only been around for a decade. It’s normal for the big Wall Street players to be skeptical until the value of the investment is proven.

Even with the back and forth, there are major Wall Street players starting to sniff around the edges of Bitcoin, so it’s important to understand how that sniffing might affect you––the investor. Wall Street's interest has the potential to affect investors, Bitcoin regulations, and ICOs (Initial Coin Offerings). Here’s how that may work.

Wall Street Interest

Bitcoin remains a high-risk investment. It’s very volatile and nearly completely unregulated. Before you invest in anything––and especially things like cryptocurrency––it’s important to understand the risk.

For now, it looks like very little will change with investing in Bitcoin and other cryptocurrencies through the Bitcoin stock exchange or through having a digital wallet.

You’ll still need a cryptocurrency wallet like Bitstamp, Bitfinex, or Coinbase. Then you’ll need to attach a bank account to that wallet––they all used double authentication because that helps protect your security.

From there you can buy or sell your Bitcoin for government currency like American dollars or British pounds––or any other currency you’d like.

Bitcoin can also be bought and sold in brokerage accounts (the Bitcoin stock exchange), and you can use it at a few vendors to pay directly for goods and services.

Another area that could be affected by the interest in Wall Street is regulation.

How Could Wall Street Involvement Affect Bitcoin Regulation?

Bitcoin is a strange beast in some ways. Because of the blockchain technology there have been no fraudulent transactions in the entire history of Bitcoin. That’s quite remarkable.

Blockchain technology is quite secure, and it’s one of the most promising new developments in cryptocurrency.

But that security doesn’t mean that cryptocurrencies won’t be facing regulations. Regulators could very well bring securities laws that are already on the books to cryptocurrency. Bitcoin may end up escaping (they’re better at following the rules), but Ether and Ripple––the second and third most traded cryptocurrencies––look like they are prime targets for regulation.

According to Gary Gensler––a former financial regulator during the Obama administration, “...there’s a strong case for both of them––but particularly Ripple––that they are noncompliant securities.”

If you decide to invest in the Bitcoin stock market or other cryptocurrencies, this potential for new regulation is something to keep in mind.

With regulations comes more scrutiny into how Bitcoin and other cryptocurrencies operate. As new cryptos hit the market they often use ICOs to do it. Here’s how that may be affected.

How Will This Affect Initial Coin Offerings (ICOs)?

An ICO is a method used by cryptocurrency startups to bypass regulated and rigorous capital raising processes that are required by banks and venture capitalists. Typically, in an initial coin offering a percentage of the new cryptocurrency is sold to early investors in exchange for Bitcoin or other legal tender.

Currently, the interest in Wall Street in Bitcoin is probably not going to affect ICOs very much. It looks like there will be more of an effect on initial coin offerings when regulators come in to deal with the growing Bitcoin stock market and other cryptocurrency efforts.

And as crypto gets bigger, regulation is more likely to happen.

With cryptocurrency getting more more attention all the time, it’s starting to move from a rogue market into a more mature one. And that’s going to bring changes––so it’s important to stay up to date and be prepared.