Goldman Sachs: Crypto and the Flight to Quality
Mathew McDermott, who is Global Head of Digital Assets at Goldman Sachs, said that 2022, the tumultuous year in the cryptocurrency market, has led to a "flight to quality" among investors in the crypto space.
Speaking on CNBC's "Crypto World" in February, McDermott said that the Goldman Sachs crypto trading desk only trades cash-settled derivatives, options, and futures.
The cryptocurrency market suffered significant losses in 2022, with Bitcoin plummeting by more than 60%. The collapse of FTX, a cryptocurrency exchange, and other crypto-related companies also raised concerns about the need for federal agencies to regulate the industry.
However, the situation has since changed, with larger investors in the space becoming more selective about which entities they trade with. McDermott noted that many of these investors now seek to trade with regulated and well-capitalised firms. He added that this trend is a direct result of the market's tumultuous year in 2022.
Goldman Sachs crypto focus on tokenisation and reshaping financial markets
McDermott shared the bank's focus areas in the cryptocurrency space in the interview with CNBC's "Crypto World." According to McDermott, the bank has three main areas of focus in crypto: tokenisation, reshaping financial markets, and the impact of digital money on markets.
McDermott emphasised the bank's excitement in exploring blockchain technology's impact on the financial system and its potential commercial applications. Despite being in the early stages of adoption, McDermott sees the broad range of financial institutions building their digital asset teams and strategies, which he finds "super exciting".
Goldman Sachs has collaborated with two other banks, Santander and Societe Generale, to launch a tokenisation platform that processed a $100 million Eurobond from the European Investment Bank. In the interview, McDermott said the bank plans to apply the technology across all geographies and expand its global reach.
"We've done something in Europe, and as we continue to build out, we're very eager to do that more broadly across the globe."
In November, CNBC reported that Goldman Sachs partnered with crypto data firm Coin Metrics and financial firm MSCI to create a new data service called Datonomy, which seeks to classify hundreds of coins and tokens so institutional investors can understand investment better in the new asset class.
With the new data service created, users can analyse and research data, as well as benchmark performance, manage portfolios, and create investment products based on sectors such as decentralised finance, Metaverse, smart contract platforms, and value-transfer coins.
The Goldman Sachs crypto chief sees Datonomy as a crucial feature for the market and believes it offers clients the tools to analyse better and invest in the space smartly.
Goldman Sachs' optimism about the future of digital assets
Last year, the collapse of FTX had a ripple effect on other crypto companies, ultimately leading to more realistic valuations for traditional financial institutions interested in investing in the underlying technology of cryptocurrencies, according to remarks by Goldman Sachs executive McDermott.
Despite the significant decline in valuations of many crypto-related firms, Goldman Sachs has remained focused on the blockchain infrastructure sector and has continued identifying promising opportunities in well-managed businesses.
McDermott highlighted that the bank had made several investments in the digital asset space, primarily focusing on blockchain infrastructure, and has seen attractive valuations in this sector.
Speaking about crypto investments, the digital asset chief said that Goldman Sachs currently has 11 crypto-related businesses in its portfolio, including renowned Coin Metrics, infrastructure firm Blockdaemon, and the most recent investment TRM Labs.
The Goldman Sachs crypto space strategic focus highlights the growing recognition of the potential impact of blockchain technology on the financial industry. With the bank's collaborations and investments in the space, it appears to be taking an active role in shaping the future of finance.
Author: Priya Kumari
Priya is a passionate content writer and the co-founder of Finendorse. She is an enthusiastic crypto investor and has a huge interest in the upcoming digitisation age.