Last year’s cryptocurrency chaos allowed crypto investors to “flee to quality,” Matthew McDermott, global head of digital assets at Goldman Sachs, told CNBC’s “Crypto World” on Friday.
“We do have a crypto trading department at the firm,” he said, noting that the bank only trades derivatives, options and futures with cash settlement.
Cryptocurrencies suffered throughout 2022 as investors steered away from risky assets. Last year, Bitcoin fell by more than 60%. The collapse of the FTX crypto exchange, along with the washout of other crypto-related companies, has also raised concerns about whether federal agencies should step in and regulate the industry.
Since then, the big investors who continue to participate in the space have become more discerning.
“We’re seeing more of our larger clients looking to join and trade with entities that they probably think are much better regulated and capitalized,” McDermott added, noting that was a byproduct of last year.
Three key directions
In a conversation with CNBC’s Cryptoworld, McDermott pointed out three main areas of the bank’s activities in cryptography: tokenization, restructuring of the financial market system, and the “profound” effect that digital money will have on various markets.
“The excitement on our part is that we can see how this technology can affect different parts of the financial system and have a real commercial impact,” he added. “We’re at such an early stage in terms of its adoption, but if you look at the market and see the breadth of financial institutions that are building their digital asset teams, their digital asset strategies, whether it’s the sell side or the buy side. on the other hand, it’s just really exciting, and I think there’s a real recognition here.”
Working with two other banks, Goldman Sachs launched a tokenization platform that handled $100 million in Eurobonds from the European Investment Bank.
“One of the things, from my perspective, that was pretty important was to demonstrate that we can apply the technology in all regions,” McDermott said. “We’ve done something in Europe, and as we continue to build, we really want to do it more globally.”
CNBC first reported in November that Goldman Sachs is also partnering with crypto data firm Coin Metrics and financial firm MSCI to create a new classification system called Datonomy, which McDermott says essentially provides a framework for investing in a new asset class.
“This is a very important feature for the market in our view,” said McDermott, describing Datonomy.
“We wanted to give clients something that would give them the tools to do better analysis, and especially for those who want to think about investing, just give them the skill set or certainly the details to be able to do that. in a smarter way,” he said.
A good liner from the chaos of 2022
The collapse of FTX in late 2022 and the domino effect that wiped out other crypto companies contributed to traditional financial institutions like Goldman getting “more reasonable” valuations of potential investments in the technology behind crypto, according to McDermott.
“There has been a sharp drop in the valuation of many companies related to the crypto market,” McDermott said. “But really the area we’re focused on is blockchain infrastructure, we’ve continued to see some really interesting opportunities in well-run businesses.”
McDermott noted that Goldman Sachs has made investments in the digital asset space, mostly focusing on blockchain infrastructure, and that the bank “sees some interesting valuation opportunities there that just look a lot more reasonable.”
Goldman Sachs has 11 crypto businesses in its portfolio, including Coin Metrics, infrastructure firm Blockdaemon and the bank’s latest investment TRM Labs.