Why Is US Banking Giant Goldman Sachs Looking To Invest Millions In Crypto Following The FTX Debacle??

At a time when the crypto market is staring at a further meltdown due to the FTX fiasco after already losing trillions of dollars in value this year, US investment banking giant Goldman Sachs seems to have an optimistic view amidst the chaos.

Plan To Spend Millions On Crypto

Goldman Sachs is planning to spend tens of millions of dollars to buy or invest in crypto companies after the collapse of the FTX hit valuations and dampened investor interest.

shutterstock

FTX's implosion has heightened the need for more trustworthy, regulated cryptocurrency players, and big banks see an opportunity to pick up business, Mathew McDermott, Goldman's head of digital assets, said, as per a Reuters report.

Goldman is doing due diligence on a number of different crypto firms, he added, without giving details.

"We do see some really interesting opportunities, priced much more sensibly," McDermott said in an interview last month.

FTX filed for Chapter 11 bankruptcy protection in the United States last month after its dramatic collapse, sparking fears of contagion and amplifying calls for more crypto regulation. A number of crypto firms have filed for bankruptcy since then.

"It's definitely set the market back in terms of sentiment, there's absolutely no doubt of that," McDermott said, as per the report. "FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform."

While the amount Goldman may potentially invest is not large for the Wall Street giant, which earned $21.6 billion last year, its willingness to keep investing amid the sector shakeout shows it senses a long term opportunity.

Its CEO, David Solomon, reportedly told CNBC last month as the FTX drama was unfolding, that while he views cryptocurrencies as "highly speculative," he sees much potential in the underlying technology as its infrastructure becomes more formalized.

Also Read: Meet The 22-YO Entrepreneur From Bangalore Whose Tea Stall Accepts Crypto Payments

Not The First Step By Goldman Sachs Towards Crypto

shutterstock

Earlier this year, Goldman Sachs became the first major US bank to announce over-the-counter (OTC) trading of cryptocurrency. In March, Goldman Sachs traded a bitcoin-linked instrument called a non-deliverable option with crypto merchant bank Galaxy Digital.

This reflected the bank¡¯s continued expansion of crypto offerings and demonstrates the continued maturation and adoption of digital assets by banking institutions.

And that's not all. The next month itself, Goldman Sachs also offered its first-ever lending facility backed by Bitcoin. This is a significant step for the major U.S. bank that accelerates Wall Street¡¯s embrace of cryptocurrencies.

The secured loan was lent as cash against Bitcoin pledged as collateral by the borrower.

Also Read: Germany Ranked Most Crypto-Friendly Country

Rivals Skeptical About Crypto

Goldman Sachs¡¯ rivals are more sceptical about the crypto market.

"I don't think it's a fad or going away, but I can't put an intrinsic value on it," Morgan Stanley CEO James Gorman said, as per the report.

HSBC CEO Noel Quinn, meanwhile, told a banking conference in London last week he has no plans to expand into crypto trading or investing for retail customers.

Goldman Sachs has invested in 11 digital asset companies that provide services such as compliance, cryptocurrency data, and blockchain management.

McDermott, who competes in triathlons in his spare time, joined Goldman in 2005 and rose to run its digital assets business after serving as head of cross-asset financing.

His team has grown to more than 70 people, including a seven-strong crypto options and derivatives trading desk.

Goldman Sachs has also launched DATOONY, a data service aimed at classifying digital assets based on how they are used, in collaboration with MSCI and Coin Metrics.

According to Reuters, McDermott's company is also developing its own private distributed ledger technology.

Also Read: Goldman Sachs' Biggest Layoffs Since Pandemic

Need For Trusted Players

shutterstock

The global cryptocurrency market peaked at $2.9 trillion in late 2021, according to data site CoinMarketCap, but has shed about $2 trillion this year as central banks tightened credit and a string of high-profile corporate failures hit. It last stood at $865 billion on Dec. 5, as per the report.

The ripple effects from FTX's collapse have boosted Goldman's trading volumes, McDermott said, as investors sought to trade with regulated and well capitalised counterparties.

"What's increased is the number of financial institutions wanting to trade with us," he said. "I suspect a number of them traded with FTX, but I can't say that with cast iron certainty."

Goldman also sees recruitment opportunities as crypto and tech companies shed staff, McDermott said, although the bank is happy with the size of its team for now.

Britannia's Crypto Efforts

Others also see the crypto meltdown as a chance to build their businesses, as per the report.

Britannia Financial Group's chief executive, Mark Bruce, reportedly told Reuters that the company is developing cryptocurrency-related services.

The London-based company aims to serve customers who are eager to diversify into digital currencies, but who have never done so before, Bruce said. It will also cater to investors who are very familiar with the assets, but have become nervous about storing funds at crypto exchanges since FTX's collapse.

Britannia is applying for more licences to provide crypto services, such as doing deals for wealthy individuals, he said.

"We have seen more client interest since the demise of FTX," he said. "Customers have lost trust in some of the younger businesses in the sector that purely do crypto, and are looking for more trusted counterparties."

For the latest and interesting financial news, keep reading Indiatimes Worth. Click here