Following a drop in valuations and a decrease in investor interest caused by the collapse of the FTX exchange, Goldman Sachs intends to spend tens of millions of dollars in order to buy or invest in cryptocurrency startups.
Mathew McDermott, the head of digital assets at Goldman Sachs, told Reuters that the collapse of FTX has increased the demand for more trustworthy and regulated cryptocurrency players and that large financial institutions see this as a chance to take up business.
He noted that Goldman is conducting due diligence on a variety of different cryptocurrency startups, but declined to provide further details. During an interview that took place one month ago, McDermott stated that Goldman Sachs does see some really exciting opportunities that are priced a lot more rationally.
On November 11, following its stunning fall, FTX submitted a petition for bankruptcy protection under Chapter 11 in the United States. This sparked fears of contagion and amplified calls for additional cryptocurrency regulation.
Mathew McDermott said, “It’s definitely set the market back in terms of sentiment, there’s absolutely no doubt of that. FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform.”
Long-Term Opportunity For The Wall Street Giant
Even while the amount Goldman may possibly invest is not a large sum for the Wall Street firm, which made $21.6 billion in revenue last year, the fact that Goldman is prepared to keep investing despite the shakeout in the sector demonstrates that it sees a long-term opportunity.
In an interview with CNBC on November 10, as the drama surrounding FTX was developing, the company’s CEO, David Solomon, stated that while he considers cryptocurrencies to be “highly speculative,” he sees a great deal of potential in the technology that underpins them as their infrastructure becomes more formalized.
However, rivals are more skeptical. For instance, James Gorman, the CEO of Morgan Stanley, stated on December 1 at the Reuters NEXT conference that he does not believe it is a fad or going away, but he is unable to place an inherent value on it.
At the same time, the CEO of HSBC, Noel Quinn, stated the previous week at a banking conference in London that he does not want to expand into crypto trading or investment for individual consumers. Meanwhile, Goldman Sachs has made investments in eleven companies that deal in digital assets and provide services such as compliance, cryptocurrency data, and maintenance of blockchains.
McDermott joined Goldman Sachs in 2005 and worked his way up through the ranks to become the head of the firm’s digital assets unit after previously holding the position of head of cross-asset finance. His group now numbers over seventy people, and it has a trading desk that handles crypto options and derivatives with seven employees.
In addition, Goldman Sachs, in collaboration with MSCI and Coin Metrics, has introduced a new data service called datonomy. This service aims to categorize digital assets according to how those assets are utilized. According to McDermott, the company is also working on developing its own private distributed ledger technology.
The Ripple Effects From FTX’s Collapse
According to the data aggregation platform CoinMarketCap, the global cryptocurrency market reached its all-time high of $2.9 trillion in late 2021. However, the market has lost about $2 trillion in value so far this year because central banks have tightened credit and a number of high-profile corporate failures have occurred.
On December 5 it was last recorded at $865 billion. According to McDermott, the fallout from the collapse of FTX has resulted in an increase in Goldman’s trading volumes. This is because investors have been looking to deal with counterparties that are regulated and have sufficient capital.
He stated that the number of financial institutions who desire to deal with Goldman Sachs has increased, and he has a suspicion that a number of those institutions transacted with FTX; nevertheless, he is unable to declare with absolute certainty that this was the case.
According to McDermott, Goldman anticipates recruitment prospects as companies in the crypto and tech industries shed workers; nonetheless, the bank is content with the current size of its workforce for the time being.
Others see the collapse of the cryptocurrency market as an opportunity to expand their enterprises. Mark Bruce, the chief executive officer of Britannia Financial Group, told Reuters that the company is in the process of developing services connected to cryptocurrencies.
According to Bruce, the company based in London intends to service consumers who are interested in diversifying their holdings into digital currencies but have never done so in the past. It will also cater to investors who are well familiar with the assets, but who have become apprehensive about holding funds at cryptocurrency exchanges since the collapse of FTX.
According to him, Britannia is in the process of seeking additional licenses so that it can provide cryptocurrency services, such as conducting business for affluent clients. Since FTX went out of business, Britannia has witnessed an increase in the amount of client interest. Customers have lost trust in some of the younger companies in the industry that focus solely on cryptocurrency, and as a result, they are searching for counterparties who can be trusted more.
