Make Kitco Your Homepage

Goldman Sachs bargain-shops for crypto firms amid crypto winter, FTX worries

Kitco News

Editor's Note: With so much market volatility, stay on top of daily news! Get caught up in minutes with our speedy summary of today's must-read news and expert opinions. Sign up here!

(Kitco News) - Mathew McDermott, head of digital assets at Goldman Sachs, said in an interview with Reuters published Tuesday that the investment bank is looking to spend “tens of millions of dollars” in the crypto ecosystem as they’re seeing low prices and better value following the implosion of FTX.

“We do see some really interesting opportunities, priced much more sensibly,” McDermott said.

The collapse of the second-largest cryptocurrency exchange has heightened the need for “more trustworthy, regulated cryptocurrency players,” he said, adding that the bank is “doing due diligence on a number of different crypto firms.”

Discussing Bankman-Fried’s now-bankrupt exchange, McDermott said its collapse has hurt the broader digital asset sector. “It’s definitely set the market back in terms of sentiment, there’s absolutely no doubt of that,” he said. “FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform.”

Goldman Sachs published a research report looking at the state of crypto on Nov. 11 shortly after FTX filed for bankruptcy. "FTX was a leader in crypto markets, and we believe the collapse of FTX comes as a major surprise and will likely impact investor confidence in crypto markets," Goldman analysts wrote.

They saw a short-term advantage for Coinbase, the largest crypto exchange in the U.S., due to increased volatility and a “flight to safety response as investors shy away from less regulated venues,” but they expected both Coinbase and the broader crypto market to be negatively impacted in the medium term. “Once volatility levels settle out, we believe the lower level of crypto prices and the potential for reduced investor confidence in the asset class will likely lead to lower volumes,” they wrote.

McDermott said that FTX’s collapse has boosted Goldman’s trading volumes as investors are now looking to trade with more regulated and better-capitalized counterparties. The bank has also seen recruitment opportunities as crypto firms lay off staff or close up shop.

“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.”

Bradley Duke, Co-CEO at crypto Exchange Traded Product (ETP) provider ETC Group, said that this kind of behavior on the part of established firms is just par for the course.

“Large financial services firms snapping up smaller distressed players is nothing new, nor is the interest of traditional finance in the crypto markets, which we have seen for some years now,” Duke said. “What is striking here is the openness of the market move - a year or two ago, investments by firms such as Goldman Sachs into crypto happened mostly under the radar. The message that this latest move sends is one of belief in crypto for the longer term and that this opportunity to bag some tidy bargains is not to be missed.”

Goldman has already invested in more than 10 digital asset companies that deliver services including compliance, cryptocurrency data and blockchain management, and McDermott’s digital assets team employs over 70 people, including a crypto options and derivatives trading desk.

The investment bank is also building its own private distributed ledger technology and has launched datonomy in partnership with MSCI and Coin Metrics, a data service that classifies digital assets based on how they are used.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.