A Goldman Sachs cryptocurrency could be in our future. Goldman Sachs (NYSE: GS) CEO David Solomon told France’s Les Echos that his investment bank is researching a cryptocurrency.
However, Solomon provides no details of his bank’s cryptocurrency work, Coindesk reports. Interestingly, Solomon refused to comment on any involvement Goldman Sachs has with Facebook’s (NASDAQ: FB) Project Libra cryptocurrency scheme.
Solomon, like other bankers, finds the theoretical benefits of cryptocrruency including tokenization, stablecoins, and frictionless payments attractive. However, Solomon provides no details on Goldman Sachs’ crypto plans.
Is Goldman Sachs planning a stablecoin?
I think a Goldman Sachs stablecoin makes sense. To explain, a stablecoin is a cryptocurrency with a built-in smart contract.
A smart contract is a digital robot creators program to carry out specific actions. For instance, a stablecoin contract releases payment in fiat currency from a bank account when somebody spends the altcoin.
By paying in fiat currency, Stablecoins limit exposure to the volatility of the cryptocurrency market. Ideally, people will trust the stablecoin because they know it will pay them in a fiat currency like the Euro.
Thus, a stablecoin is a lot like a bond or a checking account; two instruments that Goldman Sachs is very familiar with. For instance, people take your check because your bank could release payment in fiat currency when you cash it. Meanwhile, bonds will pay in hard currency at some point, either as interest or when you cash them in.
Notably, Goldman Coins could use a stablecoin to make US Dollar payments to account holders in other countries. Theoretically, stablecoin payment could be faster, cheaper, more secure, and easier than traditional wire transfers.
Why Goldman Sachs Wants a Stablecoin
Importantly, there is existing value in stablecoins. Coinmarketcap calculated the Market Capitalization of the US Dollar stablecoin Tether (USDT) at $3.842 billion on 10 July 2019.
Additionally, Tether had a 24-Hour Market Volume of $31.608 million on the same day. Coinmarketcap bases those numbers on a circulating supply of 3.845 million Tether and a Total Supply of 4.22 million USDT.
Consequently, Tether was Coinmarketcap’s 8th most valuable Stablecoin on 10 July 2019. Stablecoins like Tether are popular because each USDT is supposed to be worth $1 USD. However, Coinmarketcap valued Tether at 99.9₵ on 10 July 2019.
Given these circumstances, I think there could be a strong market for Goldman Sachs stablecoins. Additionally, a launch of several stablecoins, each pegged to a popular currency, could be a smart move for Goldman Sachs.
I think there could be a big market for a Euro stablecoin, for instance. To explain, I believe people will buy a Euro stablecoin as a dollar alternative. Many Americans and Latin Americans do not trust the US dollar.
Is Goldman Sachs Making Money?
It is easy to see why Goldman Sachs has an interest in new areas like cryptocurrency. Goldman Sachs’ revenue growth rate fell by -12.63% during the quarter ending on 31 March 2019.
However, Goldman Sachs quarterly revenues grew from $8.532 billion in December 2018 to $8.807 billion March 2019. Additionally, Goldman Sachs’ gross profit of $8.807 billion matches the revenues.
Moreover, Goldman Sachs reported a quarterly operating income of $2.943 billion and a net income of $2.251 billion on 31 March 2019. Thus, Goldman Sachs is making a lot of money without a cryptocurrency.
I think a Goldman Sachs cryptocurrency will have a lot of value because GS runs a lot of cash through its bank. For instance, Goldman Sachs reported a negative free cash flow of -$44.868 billion, an operating free cash flow of -$45.0006 billion, and a negative investing free cash flow of -$1.501 billion on 31 March 2019. Plus, Goldman Sachs had a positive financing cash flow of $3.844 billion on the same day.
Goldman Sachs’ vast Resources
Goldman Sachs definitely has the resources to launch the world’s most valuable and important cryptocurrency.
The Wall Street legend had $689.687 billion in cash and short-term investments on March 31, 2019. Specifically, Goldman Sachs reported $87.884 billion in cash and equivalents and $601.803 billion in short-term investments on that day.
Meanwhile, Goldman Sachs current assets totaled $892.763 billion and its total assets were $925.349 billion at the end of March 2019. Thus, Goldman Sachs has the cash to launch a cryptocurrency or stablecoin with several billion dollars in value instantly.
Most importantly, Goldman Sachs has the people to create a cryptocurrency. In fact, Solomon tells CNBC that Goldman Sachs employs thousands of engineers. Notably, CNBC claims, one fourth of Goldman Sachs’ 36,600 employees are engineers.
If those claims are true, I estimate Goldman Sachs employs 9,150 engineers worldwide. To clarify, Statista estimates Goldman Sachs’ 2018 global workforce at 36,600 people and I calculate one fourth of 36,600 equals 9,150. Therefore, Goldman Sachs could have several hundred engineers working on its cryptocurrency project.
What Cryptocurrencies could Goldman Sachs Buy?
Additionally, Goldman Sachs has the money to buy almost any existing cryptocurrency or blockchain project.
For instance, Goldman Sachs could easily buy a banking blockchain like BABB (BABB), a liquidity network like Bancor (BNT), or a stablecoin like CarbonUSD (CUSD). Plus Goldman Sachs has the resources to buy almost any cryptocurrency exchange or blockchain research organization like Block.One. Notably, Block.One is the entity behind the popular Ethereum alternative EOS (EOS).
My suspicion; however, is that Goldman Sachs will launch its own-branded cryptocurrency solutions. On the other hand, it is entirely possible that Goldman Sachs will buy existing cryptocurrency or blockchain solutions for the technology. Goldman Sachs could buy CarbonUSD to get that crytpocurrency’s smart contract, for example.
Thus, speculators need to watch Goldman Sachs’ acquisition plans carefully. Just the rumor, GS is shopping for cryptocurrencies could disrupt the market.
Is Goldman Sachs a Value Investment?
I think Goldman Sachs is a value investment with or without a cryptocurrency. To explain, I think Mr. Market fairly priced Goldman Sachs (NYSE: GS) at $206.03 on 10 July 2019.
Moreover, Goldman Sachs’ dividend grew by 5₵ in June 2019. To explain, GS paid an 80₵ dividend on 28 March 2019 that grew to 85₵ on 27 June 2019. Meanwhile, Dividend.com reports each GS share offered a dividend yield of 1.64%, an annualized payout of $3.4, and a payout ratio of 13.8% on 10 July 2019. Plus, Goldman Sachs has rewarded investors with seven years of dividend growth.
Under these circumstances, Goldman Sachs is a great investment in financial technology. If you are looking for a stock that could benefit from the growing popularity of cryptocurrency, investigate Goldman Sachs.
Originally published at https://marketmadhouse.com on July 10, 2019.