LONDON, December 6 (Reuters) – Goldman Sachs (GS.N) plans to spend tens of millions of dollars buying or investing in crypto companies after the collapse of the FTX exchange hit valuations and dampened investor interest.
The FTX implosion has increased the need for more trusted and regulated cryptocurrency players, and big banks see an opportunity to get back to business, Mathew McDermott, head of digital assets at Goldman, told Reuters.
Goldman does due diligence on a number of different crypto companies, he added, without giving details.
“We’re seeing some really good opportunities, at a much more reasonable price,” McDermott said in an interview last month.
FTX filed for Chapter 11 bankruptcy protection in the United States on November 11 after its dramatic collapse, sparking fears of contagion and amplifying calls for increased crypto regulation.
“It’s definitely pushed the market back in terms of sentiment, there’s no doubt about it,” McDermott said. “FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to work.”
While the amount Goldman can potentially invest isn’t significant for the Wall Street giant, which earned $21.6 billion last year, its willingness to continue investing amid the industry’s slump shows that he senses a long-term opportunity.
Its CEO, David Solomon, told CNBC on Nov. 10, as the FTX drama unfolded, that while he viewed cryptocurrencies as “highly speculative,” he saw a lot of potential in the underlying technology as that its infrastructure was becoming more formalized.
Rivals are more skeptical.
“I don’t think it’s a fad or going away, but I can’t put any intrinsic value on it,” Morgan Stanley said. (MS.N) CEO James Gorman said at the Reuters NEXT conference on December 1.
HSBC (HSBA.L) CEO Noel Quinn, meanwhile, told a banking conference in London last week that he has no plans to expand into crypto trading or investing for retail clients.
Goldman has invested in 11 digital asset companies that provide services such as compliance, cryptocurrency data and blockchain management.
McDermott, who competes in triathlons in his spare time, joined Goldman in 2005 and rose to head its digital asset business after being responsible for multi-asset finance.
Its team has grown to over 70 people, including a seven-person crypto options and derivatives trading desk.
Goldman Sachs has also launched, in collaboration with MSCI and Coin Metrics, the datonomy of data services, aimed at classifying digital assets according to their use.
The company is also building its own private distributed ledger technology, McDermott said.
The global cryptocurrency market peaked at $2.9 trillion at the end of 2021, according to data site CoinMarketCap, but has lost around $2 trillion this year as central banks tightened credit and a series of high-profile corporate bankruptcies. It last stood at $865 billion on December 5.
The ripple effects of FTX’s collapse boosted Goldman’s trading volumes, McDermott said, as investors sought to trade with regulated and well-capitalized counterparties.
“What has increased is the number of financial institutions that want to trade with us,” he said. “I suspect a number of them traded with FTX, but I can’t say that with absolute certainty.”
Goldman also sees recruiting opportunities as crypto and tech companies lay off staff, McDermott said, though the bank is happy with the size of its team at the moment.
Others also see the crypto crash as a chance to grow their business.
Britannia Financial Group is expanding its cryptocurrency-related services, its chief executive Mark Bruce told Reuters.
The London-based company aims to serve customers who are keen to diversify into digital currencies, but have never done so before, Bruce said. It will also appeal to investors who are very familiar with the assets, but have become nervous about storing funds on crypto exchanges since the collapse of FTX.
Britannia is asking for more licenses to provide crypto services, like doing business for high net worth individuals, he said
“We’ve seen more interest from customers since FTX’s demise,” he said. “Clients have lost faith in some of the younger companies in the industry that only do crypto and are looking for more reliable counterparties.”
Reporting by Iain Withers and Lawrence White, editing by Lananh Nguyen and Alexander Smith
Our standards: The Thomson Reuters Trust Principles.