A Goldman Sachs executive predicts there may be consolidation coming for cryptocurrency infrastructure providers as the market matures.
In a recent company podcast, Matt McDermott, global head of digital assets for Goldman Sachs Global Markets Division, hinted that “incumbent banks” – like Goldman – could face pressure to increase their crypto business lines, with one obvious path being mergers and acquisitions.
“This is a fast-evolving landscape where the crypto incumbents have certainly made huge progress over the last couple of years,” McDermott said. “There is an expectation from clients now that the incumbent banks will develop their offerings to satisfy that demand. And so, certainly anticipate a certain amount of consolidation across that space.”
That has changed in the last three to six months, however, as institutions (from “hedge funds, to asset managers, to macro funds, to banks, to corporate treasurers, insurance and pension funds,” McDermott said) show an increasing appetite for bitcoin.
To meet that growing demand, Goldman said it will revitalize its crypto trading desk, announced in 2017, but shelved months later due to regulatory concerns. The offering could see light as early as mid-March, CoinDesk reported, though “will be quite narrow initially,” according to McDermott.
The bank will offer Chicago Mercantile Exchange (CME) bitcoin futures and non-deliverable forwards, he said, as well as disseminate “bitcoin content” to institutional clients. CME offers cash-settled bitcoin contracts, meaning that traders never take physical possession of the underlying asset.
Asked “what's kept Goldman and others from taking a bigger role in crypto?” McDermott replied there are restrictions in place preventing banks from dealing directly with the commody. Which is a shame, because there is reportedly increasing demand, particularly, from macro-focused hedge funds, to “access the physical,” McDermott said.
“That's been something that we've had to think cleverly how we can facilitate that demand in a different way,” he said. “We're seeing certain banks [in Asia] look at developing institutional exchanges and other avenues to execute the physical with institutional clients.”
McDermott didn’t go into detail about what exactly is preventing U.S.-based banks from “trading the physical.” In 2020, former acting head of the Office of the Comptroller of the Currency (OCC), Brian Brooks, put forward a number of progressive policies that would allow banks to safely enter the industry.
In several interpretative letters Brooks opened the door for banks to custody cryptocurrencies, take on stablecoin clients and even act as nodes on public blockchain networks. Spot trading crypto, however, appears to be out of the question, according to McDermott.
In the podcast, McDermott noted that a recent survey of 300 Goldman clients found that 40% already have exposure to crypto, either through holding the asset directly, derivatives or securities products. The survey also found 32% were most interested in prime brokerage for physical or spot to gain exposure to cryptocurrencies.
“Talking to those clients, they're much clearer on why they want to invest. Really, what they're interested in is broader market behavior. And really identifying what are the most efficient ways for them to get exposure and to think about hedging,” McDermott said.
“In terms of kind of institutional demand, we have seen no signs of that abating,” he said.
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