The chaotic events of last year in the crypto market has driven investors to seek out higher-quality assets, Mathew McDermott, global head of digital assets for Goldman Sachs, said on CNBC’s “Crypto World” show Friday.
“We do have a crypto trading desk at the firm,” he said, noting that the bank only trades cash-settled derivatives, options and futures.
Cryptocurrencies dropped drastically in 2022, with Bitcoin plunging over 60%. The bankruptcy of FTX and the downfall of other crypto-related businesses raised worries if federal authorities would have to step in and regulate the industry.
However, big investors that remain active in the sector have become more selective.
“What we’ve seen more of our larger clients eager to onboard and trade with what they probably perceive to be much better regulated and capitalized entities,” McDermott added, noting that this has been a consequence of last year.
McDermott’s Three Focus Areas
McDermott told CNBC’s “Crypto World,” his three main areas of concentration in crypto are tokenization, transforming the plumbing of financial markets and the profound effect of digital money in various markets.
“The enthusiasm from our side is … seeing how this technology can impact many different parts of the financial system and have a real commercial impact,” he said. “We’re at such an early stage in terms of its adoption, but as you look across the marketplace and you see the breadth of financial institutions building out their digital asset teams, their digital asset strategies, be that the sell side or the buy side, it’s just super exciting and I think there’s a real recognition there.”
In collaboration with two other banks, Goldman Sachs launched a tokenization platform that processed a $100 million eurobond from the European Investment Bank.
“One of the things from my perspective that’s kind of been quite important is really demonstrating that we can apply the technology across all the geographies,” McDermott said. “We’ve done something in Europe and as we continue to build out, we’re very eager to do that more broadly across the globe.”
CNBC reported in November that Goldman Sachs had joined forces with a crypto data firm Coin Metrics and financial firm MSCI to create a new classification system known as Datonomy, which McDermott said provides a framework for investing in the new asset class.
“This we felt was a really important kind of feature for the market,” McDermott said, referring to Datonomy.
“We wanted to give our clients the tools to better analyze, particularly those who are interested in investing, and just provide them with the tools and information to do it in a smarter way,” he said.
A Positive Development from Last Year’s Mayhem
FTX’s collapse in late 2022 and the subsequent ripple effect that wiped out other crypto firms have made traditional financial institutions, such as Goldman Sachs, presented with “more sensible” valuations for potential investment in the technology that underpins digital assets, McDermott said.
“There’s been this precipitous fall in the valuation of many companies related to the crypto marketplace,” McDermott said. “But in the area we’ve been focusing on, blockchain infrastructure, we’re seeing some interesting opportunities in businesses that are properly managed.”
McDermott noted that Goldman Sachs has made investments in the digital asset space, primarily focusing on blockchain infrastructure and that the bank is “seeing some interesting opportunities there at valuations that look much more reasonable.”
Goldman Sachs has 11 crypto businesses in its portfolio, including Coin Metrics, infrastructure firm Blockdaemon and the bank’s most recent investment TRM Labs.
