Wall Street's three major Bitcoin investment giants: Seeking profit and avoiding harm

Bitcoin is a disruptive technology designed to cut out the middlemen of traditional economics. But this year, things got complicated. The digital currency and the technology behind it paled in the face of obstacles that have plagued investors rather than institutions.

The New York Stock Exchange, Goldman Sachs and Fortress Investment Group are the three major financial pillars of Wall Street, and all of them have invested in Bitcoin and the decentralized ledger technology behind it (i.e. Bitcoin blockchain). Looking at their recent investment strategies, it can be found that participating in this "game" not only gains money, but also the convenience brought by this cryptocurrency.

“They’re investing for monetary reasons,” said David Berger, founder and head of the Digital Currency Council, which certifies bitcoin companies and counts 500 startups among its members. “But at the same time, they know, like us, that this is a learning process.”

From the current investment situation of these three giants and the impact of their investments on the mainstream economy, we can find that these three once parallel economic systems may merge into one. At least, this is the common hope of current investors.

Fortress Investment Group

Fortress Investment Group's strategy is to hold on to Bitcoin. From investing in Bitcoin for the first time to investing in hedge funds behind companies that build tools to support Bitcoin, Fortress Group has had a great impact on the virtual currency and has actually helped many newly established companies.

Fortress Investment Group, with a current market value of $3.35 billion, is currently the only one of the three major financial institutions in New York to actually invest in Bitcoin. By investing directly in Bitcoin rather than the people behind its company, Fortress Investment has unfortunately become a victim of Bitcoin's depreciation, but it also proves that it is indeed optimistic about Bitcoin very early. The company's 2013 annual report shows that its holdings of $20 million worth of Bitcoin evaporated to only $3.7 million by the end of that year, which is indeed a completely unexpected loss. At the end of 2013, the market price of Bitcoin finally dropped from $1,200 in its heyday to $277.

Then in the following year of 2014, Fortress doubled down on its investment in Bitcoin companies in April, reducing its investment in Bitcoin itself, and shifting its initial $150 million investment to hedge funds and Benchmark in exchange for an equity stake in Pantera Capital Management, which manages the Pantera Bitcoin Partners fund. Pantera has invested in Bitcoin companies almost every year in the past few years, except for Coinbase.

Pantera's investment, coupled with the support from Fortress Group, has given Bitcoin the most lucrative investment in history, with company21 raising $21.116 billion, Xapo receiving $20 million, and Circle Internet Financial raising a total of $67 million in two rounds.

New York Stock Exchange

While Fortress does not own a stake in Coinbase, the New York Stock Exchange does. In January, as the bitcoin world waited to see whether the cryptocurrency would end or eventually enter the mainstream, the New York Stock Exchange joined a $75 million round of funding for bitcoin wallets and exchanges, becoming the second-largest investor in the bitcoin startup. With the help of the New York Stock Exchange, San Francisco-based Coinbase now has more than $100 million in venture capital, 39,000 trading merchants, and 2.8 million wallet users.

The NYSE’s investment in Coinbase has been a safe bet, though it is essentially a symbolic move. Coinbase has raised more than $30 million from previous investors such as New York’s Union Square Ventures and Silicon Valley’s Andreessen Horowitz and has long been a market leader.

However, the NYSE Bitcoin Index (NYXBT) launched in May, a daily Bitcoin price displayed in Coinbase data, and finally other Bitcoin dealers, showed greater influence. The confidence and enthusiasm in the industry gave Coinbase greater influence relative to its investment.

“When consumers consider whether to trade and invest in bitcoin, the market value of bitcoin is an important consideration,” said Thomas Farley, chairman of the New York Stock Exchange, in a statement accompanying the launch of the new index. “As the responsible institution for many of the world’s most important indices, such as ICE LIBOR and the ICE Futures US Dollar Index, we are pleased to bring greater transparency to this market.”

Goldman Sachs

In April, Goldman Sachs, a New York-based investment bank with a market value of $94.1 billion, led a $50 million third round of funding for Circle Internet Financial (Pantera also participated in the round). Circle, based in Dublin, aims to make bitcoin accessible to everyone and treat it as a normal thing, rather than a transaction that requires a high level of computer knowledge. Goldman Sachs' investment is not focused on the technically savvy, but on those users who are not particularly tech-savvy but are equally important.

Similar to the way the New York Stock Exchange invests in Bitcoin, Goldman Sachs' investment in Bitcoin is also very safe and secure. Jeremy Allaire is the founder of Circle and also launched the $210 million video platform Brightcove in 2004. He has always been regarded as one of the most intelligent and visionary people in the Bitcoin industry.

However, Tom Jessop, managing director of Goldman Sachs, said in a statement that the company's investment strategy is not limited to management teams and products. "As the financial services industry becomes increasingly digital and open, we also see many development opportunities that can change global markets through technological innovation."

Blockchain and its meaning

Berger of the Digital Currency Committee said that the support of Fortress Investments, the New York Stock Exchange and Goldman Sachs for Bitcoin companies is still very beneficial to investors, even if they initially adopt non-monetary policies. But in this process, the biggest beneficiary may be the Bitcoin industry itself.

New York-based CB Insights released a report in April showing 14 major financial service providers investing in Bitcoin. In addition to the three financial leaders mentioned above, the other 11 global companies on the list include Google Ventures, Cisco and Qualcomm.

What all these investment firms have in common is that each has invested in Bitcoin at a safe distance while giving the technology a respect that has only existed in the black market in the past. Perhaps more importantly, these investments have helped the companies learn more about Bitcoin and the decentralized ledger technology behind it, known as blockchain.

Last month, former NYSE CEO Duncan Niederauer joined Symbiont's $1.25 million seed funding round. Symbiont is positioned as a bridge between Wall Street and the nascent cryptocurrency space. "We're trying to solve the processing and clearing of bitcoin itself, including payment issues," said Adam Krellstein, its founder and chief technology officer, in an interview at his Wall Street office. "We're trying to broaden people's horizons and understanding of this new asset class, which is compatible and an extension of the original goal."

When Niederauer tried to invest cash in March, the former chief financial officer of JP Morgan, who was once called the strongest iron lady on Wall Street by The Guardian, became the CEO of Digital Asset Holdings LLC and Blythe Masters. The company also aims to come up with new digital ideas outside of traditional financial assets, but the two recent acquisitions are not intended to be based on Bitcoin blockchain technology, but rely on their own technology.

"I think they're taking a gamble," said Lee Arthur, managing director of the New York Financial Association, about Wall Street's investment in Bitcoin. Arthur's company has been exploring how to guide the next generation of financiers in a market that is changing so rapidly. "If you were once a big shot in this field, you might be smart enough to get involved in some potential risks."

Bitcoin's price was $253 on Friday, and has risen $20 to $273 at the time of writing, which may be related to Switzerland's vote against the eurozone's emergency bailout on July 5. A similar price increase occurred when Cyprus banks were bailed out in March 2013, but the magnitude was even greater. In both cases, Bitcoin appears to be a safer bet than cash reserves.