As the meteoric rise of bitcoin and other cryptocurrencies continues at pace, investment banks are now getting in on the action. For Goldman Sachs, it is a return to a project that had been all but abandoned in the last two years.
The Wall Street lender is relaunching its cryptocurrency trading desk this month, overseen by its global markets division and the digital assets team. Mathew McDermott, the Goldman Sachs’s global head of digital assets based in London, stands at the helm.
The desk, first set up in 2018, will initially deal CME bitcoin futures and non-deliverable forwards for the bank’s institutional clients. Its second debut comes as bitcoin broke past $60,000 for the first time on 14 March, though it later faltered as the cryptocurrency’s omnipresent price volatility set in.
In time Goldman might also consider buying, selling and holding bitcoin, as its digital assets team is working on projects in enterprise blockchain, digital transactions, digital wallets and stablecoins. In a recent phone interview, McDermott told Fintech Files that the bank is paying close attention to Facebook-founded firm Diem (formerly Libra) and the ramifications it might have for Goldman’s business.
“We’re staying very close to that and really thinking about how that can potentially impact what we do as a firm, and how that impacts the landscape,” McDermott said.
On blockchain, Goldman is determined to stand out from its peers. Unlike rival JPMorgan, which has been busy developing its own JPM Coin and interbank blockchain network Liink, McDermott said the investment bank is not focused on creating a proprietary solution.
“We want to be technology agnostic,” McDermott said, adding that his team is creating infrastructure internally to work with other external blockchain projects such as those developed by R3 and Consensys.
“From my perspective, it kind of makes us more nimble. And then if we feel that we want to do things in-house, we can,” he said. “But at the moment, having that ability to work closely with the market, which is the key thing for this space, there’s plenty of opportunity out there [to] use technology that has already been developed.”
The engineering team is analysing how blockchain might be used across the bank, from asset management and global markets, to ESG and trade finance.
The division is also eyeing other digital currencies, McDermott said, keeping track of which currencies are being transacted on exchanges and developments in digital wallets and custody — an important part of Goldman’s future operations, having already submitted a request to regulators to develop its own solution.
Separately, the digital assets team is involved in Goldman’s strategic investment decisions, advising on taking stakes in startups where the bank might be able to leverage an opportunity. Currently, McDermott said the firm is interested in deploying capital and retaining board representation across market peers, buy-side technology companies and payments companies.
“We get to see some really interesting investing opportunities, and so we work very closely with the teams that make those investments for the firm. There are a number of other opportunities that we’re pursuing in that space at the moment,” he said.
The cryptocurrency trading desk itself will operate 24/7, with staff distributed across the bank’s major global hubs.
“We now have people positioned in all the different geographies that you’d expect — which I think is hugely important given there’s huge amounts going on in Asia. The UK and Europe are really starting to kind of get into a cadence in this space, and the US too,” McDermott said.
More than 95% of the bank’s conversations on digital assets with clients are about bitcoin, he added, but that ethereum and decentralised finance were rising in popularity. In the last six to nine months, Goldman had seen “not just a steady inflow, [but] a phenomenal amount of institutional appetite to get access through a variety of different mediums”.
“It just became very evident to us that to facilitate demand, having the capability to market [digital assets] was important,” McDermott said.
“We’ve crossed the line now. The focus will become broader and so there’ll just be different reasons for why you’d want to be involved with different cryptocurrencies, because of the underlying technology that’s coming.”