Goldman Sachs Comes To The Party

By Raghav Sawhney

Circle, a payment startup by Goldman Sachs announced yesterday that it will be launching a new cryptocurrency called the Circle USD Coin, which is pretty much a digital version of the Dollar which you can purchase by trading in the original Dollar.

The USD Coin is the first cryptocurrency released by a major financial institution. While this sort of goes against the whole point of decentralized and distributed cryptocurrencies like Bitcoin, Goldman Sachs and Circle hope to bring some stability to the cryptocurrency market, which has crashed and rebounded an exhausting number of times this year alone.

A $110 million investment round led by profitable crypto-mining company Bitmain brings Circle’s value near $3 billion, the company announced Tuesday. Circle doesn’t want its USD Coin to be subject to the instability and inflation inherent to other unregulated cryptocurrencies, so it will tie the value of a coin to that of a US dollar, according to CNBC.

“It unlocks an incredible amount of power for the dollar,” said Jeremy Allaire, CEO of Circle. “It’s basically a dollar that operates on Blockchain.”

Again, this pretty much goes against the whole point of cryptocurrencies, which were originally designed to present a transparent financial market free of regulation from federal government and the influence of big banks.

Critics including Stan Druckenmiller have said cryptocurrencies can’t be used as a means of payment because their value changes so often and so rapidly. Circle customers will be required to hold $1 for every USD Coin, keeping the price stable. Once U.S. dollars are transferred to Circle’s USD Coins, Allaire said they can be moved within seconds thanks to blockchain technology. He said they will eventually add tokens for the euro and pound but it’s less likely they’ll immediately look to peg most Asian currencies because of existing competition in that arena. Other companies, such as Tether and Basis, also have offered “stable coins” with a value tied to the U.S. dollar. But Allaire said there’s a need for a “compliant alternative” to Tether, which has a $2.2 billion market cap, according to CoinMarketCap.com.

The USD Coin is being run on the Ethereum blockchain, but Allaire said they’re open-minded about other platforms if any come to market that can outperform.

Given Goldman Sachs’ recent investments in the crypto realm and announcement that the firm would trade Bitcoin on behalf of investors, it makes sense that the financial giant is trying to control the market as best it can.