Goldman Sachs Doubles Down on Crypto with Derivatives, Trading Team
While banks once shunned digital assets entirely, their mood has changed on the topic as more and more of their clients add it to portfolios and corporations add it to the balance sheet.
- Investment bank plans to offer non-deliverable forwards to clients
- Memo to staff outlines the creation of a dedicated crypto desk
Goldman Sachs announced late this week a far-reaching digital assets strategy that involves offering bitcoin derivatives to clients as well as opening a dedicated trading desk for cryptocurrency.
While banks once shunned digital assets entirely, their mood has changed on the topic as more and more of their clients add it to portfolios and corporations add it to the balance sheet. Guidance from the Office of the Comptroller of Currency on custody help gave a green light to banks to offer these assets to clients, and it’s likely that approval of a bank charter for “crypto banks” created a spirit of competition in the industry.
The derivatives that Goldman offers to clients would be non-deliverable and settled in cash, which means that Goldman would never have to custody bitcoin nor work out an arrangement to deliver it to its clients. This is similar to what most regulated derivatives trading desks offer, such as CME and Bakkt. Reports say that Goldman would use CME’s bitcoin futures market to buy and sell bitcoin futures as blocks as a counter to volatility.
A Goldman memo obtained by CNBC says that bank personnel are engaged in trading two types of bitcoin-linked derivatives: bitcoin non-deliverable forwards, and CME bitcoin futures. Both of which are settled in cash. The team will be under the bank’s global currencies and emerging markets division. Goldman also said that it had launched a digital assets dashboard for clients, providing real-time market data.
Gene Grant, CEO of VRBex, said that Goldman’s entry into the market provides leverage and flexibility for institutional investors. Goldman entering the market should force a repricing of outstanding over-the-counter derivatives, he believes.
“The crypto markets have been systematically underpricing or outright ignoring credit risk. Derivatives are bilateral contracts – put another way, they are contracts made between the two parties – and each party depends upon the other side to actually meet their obligations. Failures do actually happen, and that risk of one side not meeting their obligations is credit risk,” he told Blockworks. “Goldman will set the standard for low-risk credit. They are a well-capitalized and well-regulated financial institution. The existing crypto-focused incumbents are not in the same league – they are not transparent about their capitalization, controls and management, and oversight.”
Recently, digital assets data company Coin Metrics, co-founded by crypto-twitter personality and Castle Island Ventures partner Nic Carter, closed a $15 million round led by Goldman Sachs. Late last month data provider Skew was acquired by Coinbase for an undisclosed amount.
The trading desk will be led by Mathew McDermott and will report to Rajesh Venkataramani, the bank’s London-based head of GCEM Foreign Exchange Options Trading.
Venkataramani noted in the memo that, “the firm is not in a position to trade bitcoin, or any cryptocurrency (including Ethereum) on a physical basis.”
This story was updated at 1:22 p.m. EDT.