Goldman Sachs Looking To Invest Or Acquire Crypto Companies At A Bargain Following FTX Collapse

Following the collapse of the FTX exchange, which lowered valuations and dampened investor interest, Goldman Sachs plans to spend tens of millions of dollars to buy or invest in crypto companies.

The implosion of FTX has increased the demand for more trustworthy, regulated cryptocurrency players, and big banks see an opportunity to pick up business, according to Mathew McDermott, Goldman’s head of digital assets.

Goldman is conducting due diligence on a number of different cryptocurrency firms, he added, without providing further details.

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

Following its stunning implosion, FTX filed for Chapter 11 bankruptcy protection in the United States on November 11, stoking fears of contagion and exacerbating demands for more crypto regulation.

“It’s definitely set the market back in terms of sentiment, there’s absolutely no doubt of that,” McDermott said. “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 small for the Wall Street behemoth, which earned $21.6 billion last year, its willingness to continue investing in the midst of the sector shakeout indicates that it sees a long-term opportunity.

While cryptocurrencies are “highly speculative,” according to its CEO David Solomon, he sees a lot of potential in the underlying technology as its infrastructure becomes more formalized.

Rivals are skeptical.

“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 at the Reuters NEXT conference on Dec. 1.

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

Goldman has made investments in 11 digital asset companies that offer services like compliance, cryptocurrency data, and blockchain management.

McDermott, who enjoys triathlons in his spare time, joined Goldman in 2005 and rose through the ranks to become head of its digital assets business after serving as head of cross asset financing.

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

Goldman Sachs, in collaboration with MSCI and Coin Metrics, has also launched the data service datonomy, which aims to categorize digital assets based on how they are used.

McDermott also stated that the company is developing its own private distributed ledger technology.

According to data site CoinMarketCap, the global cryptocurrency market peaked at $2.9 trillion in late 2021, but has lost about $2 trillion this year as central banks tightened credit and a string of high-profile corporate failures hit. On December 5, it was worth $865 billion.

The fallout from FTX’s demise has increased Goldman’s trading volumes, according to McDermott, as investors seek to trade with regulated and well-capitalized 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.”

McDermott added that Goldman sees recruitment opportunities as crypto and tech companies shed employees, though the bank is content with the size of its team for the time being.

Others see the crypto meltdown as an opportunity to expand their businesses.

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

According to Bruce, the London-based company aims to serve customers who are eager to diversify into digital currencies but have never done so before. It will also cater to investors who are very familiar with the assets but are wary of storing funds at crypto exchanges following the collapse of FTX.

He stated that Britannia is applying for more licenses to provide crypto services, such as transactions for wealthy individuals.

“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.”

(Adapted from Reuters.com)

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