If you were awake in the last decade and even remotely cognizant of the global financial crisis, you’ve heard the names Goldman Sachs and Morgan Stanley. Goldman was one among many subjects of a holy crusade by Rolling Stone writer Matt Taibbi. Taibbi spent years uncovering evidence of market manipulation and monopolistic practices (not to mention “sub-prime” lending and other toxic policies that led to the housing collapse) on a level never-before-seen in America.
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One of the schemes that everyday people hadn’t much heard of prior to the financial crisis was derivatives trading – trading that did not require the investor to actually hold the a real asset, but simply place a bet on the value of it. Such situations enabled certain institutions to technically profit even while they performed abysmally and returned no value to their shareholders.
Timo Schlaefer, who holds a doctorate in “Financial Engineering,” worked in Goldman Sachs’ investment banking division in the years leading up to the collapse of the global economy, leaving in 2007 for unreported reasons. He returned in 2011 and must have only recently retired as Executive Director in Credit Quantitative Modelling, as his resume states he worked there until 2015.
In partnership with another former big-time banker, Jean-Christophe Laruelle from Société Générale, Schlaefer has founded Crypto Facilities. What Crypto Facilities will be primarily concerned with is the hedging of Bitcoin investments via derivatives trading. Its first offering will be the trusty forward contract, a trading mechanism utilized in all derivatives markets. These are purely financially-minded people, keep in mind, and the liberating benefits of Bitcoin as well as its technological superiority are meaningless to them. In their press release, they make as much clear:
The platform aims to appeal to sophisticated investors and is backed by a high-profile team of experienced professionals from top investment banks and regulatory advisors. “The bitcoin space still lacks professional, reliable marketplaces, and this is what we provide. We apply the same standards in terms of risk management, compliance and reporting as you would see in the traditional finance space,” said Timo Schlaefer, Co-Founder and CEO.
It appears he didn’t get the memo – other financial heavyweights have also entered the space recently with the intention of giving the cryptocurrency a more “grown up” approach to valuations and trading. Notable examples are the Winklevoss Twins’ upcoming Gemini exchange and Coinbase’s Exchange. Either of these could implement derivatives trading in order to push this new old-money start-up right out of the market.
In every case, the founders of these exchanges believe they’ve discovered the wheel. In truth, they’ve recycled ideas from the old economy – in some cases, like this one involving derivatives, the very same ideas that led to the collapse that led to Satoshi’s solution – and tailored them for a new generation. Whether or not that’s a net negative will be determined by their long-term effect on Bitcoin.
To be fair to Schlaefer, his firm is not jumping in with both feet and threatening to plunge the value of Bitcoin irreparably. At least not yet. The forward contracts, if used properly by Bitcoiners, can potentially provide a degree of price stability many have been craving for years.
With big players sniffing around the edges of our playing field, it may be difficult for many long-time cryptocurrency investors, producers, movers, and shakers to decide whether to hold or to fold. In these decisions, it will be important to consider that if there is this level of financial interest, the future is brighter than it was when Wired Magazine declared the death of Bitcoin back in 2012 and the word Bitcoin was synonymous with the word Silk Road.
Last modified: March 4, 2021 4:43 PM