LONDON: Goldman Sachs plans to buy or invest millions of dollars in cryptocurrency companies after the collapse of the FTX exchange hit valuations and reduced investor interest.
Matthew McDermott, Goldman’s head of digital assets, told Reuters the collapse of FTX has accelerated the need for more trusted and regulated cryptocurrency players and sees an opportunity for big banks to jumpstart the business.
He added that Goldman is conducting due diligence on several crypto companies without providing details.
“We see exciting opportunities that are very reasonably priced,” McDermott said in an interview last month.
FTX filed for Chapter 11 bankruptcy protection in the US on November 11 following its dramatic decline, fueling fears of contagion and strong calls for more cryptocurrency regulation.
“It’s pulled the market back in terms of sentiment; there’s no doubt about that,” McDermott said. FTX was a poster boy in many parts of the ecosystem.
While Goldman’s potential investment isn’t huge for the Wall Street giant, which earned $21.6 billion last year, its willingness to continue investing amid sector volatility suggests it senses a long-term opportunity.
Coinciding with the FTX drama, its CEO David Solomon told CNBC on November 10 that while he considers the cryptocurrency “highly speculative,” he sees enormous potential in the underlying technology as its infrastructure becomes more formalized.
Competitors are more pessimistic.
“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 in a Reuters conference call on December 1.
Meanwhile, HSBC CEO Noel Quinn told a banking conference in London last week that he has no plans to expand his crypto business or invest in retail clients.
Goldman has invested in 11 digital asset companies that provide compliance, crypto data, and blockchain management services.
McDermott, who competes in triathlons in his spare time, joined Goldman in 2005 and ran the business of its digital assets after serving as head of mutual funds.
Their team has grown to over 70 people, including a seven-day cryptocurrency and derivatives trading desk.
Goldman Sachs, along with MSCI and Coin Metrics, has also launched a service called Data Analytics, which aims to classify digital assets based on usage.
McDermott said the company is also building its own private distributed ledger technology.
According to data from Coinmarketcap, the global cryptocurrency market is set to reach $2.9 trillion by the end of 2021, but nearly $2 trillion will be lost this year as central banks devalue and a series of big-hit corporate failures. The last time was $865 billion on December 5.
McDermott said the ripple effect from FTX’s fall had boosted Goldman’s trading volume as investors sought deals with regulated and well-capitalized parties.
“The number of financial institutions willing to do business with us has increased,” he said. “I suspect many of them have traded with FTX, but I can’t say which cast iron.”
Goldman also sees hiring opportunities as technology and cryptocurrency companies shed employees, McDermott said, although the bank is currently comfortable with the size of its team.
Others see the crypto crash as an opportunity to build their own business.
Mark Bruce, the group’s chief executive, told Reuters that the British financial group is building its cryptocurrency-related services.
Bruce said the London-based firm aims to serve clients interested in diversifying into digital currencies but have never done so. It also caters to investors familiar with the asset but has been wary of raising funds on crypto exchanges since the collapse of FTX.
He added that the UK is applying for more licenses to provide crypto services such as trading for wealthy individuals.
“We’ve seen more customer interest since FTX closed,” he said. “Clients have lost confidence in some of the younger businesses in the sector that deals exclusively in crypto and are looking for more reliable counterparts.”
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