- A “flight to quality” is taking place in the crypto markets, Mathew McDermott, head of digital assets at Goldman Sachs, told CNBC’s Crypto World on Friday.
- He pointed to the key areas in crypto the big bank plans to focus on: tokenization, reshaping financial markets, and the “profound” impact digital currencies will have on markets.
The chaos in the cryptocurrency space over the past year has prompted a “flight to quality” among crypto investors, Mathew McDermott, global head of digital assets at Goldman Sachs, told CNBC’s Crypto World on Friday.
“We have a crypto trading desk at the firm,” he said, noting that the bank only trades cash-settled derivatives, options and futures.
Cryptocurrencies suffered in 2022 as investors steered clear of risky assets. Bitcoin is down more than 60% over the past year. The collapse of crypto exchange FTX, along with a washout at other crypto-related companies, also raised concerns about the need for federal agencies to step in and regulate the industry.
Since then, large investors who continue to invest in this space have become more demanding.
“We’ve seen more of our larger clients looking to get on board and trade with companies that they probably think are much better regulated and capitalized,” McDermott added, noting that this is a by-product of the last year was.
Speaking to CNBC’s Crypto World, McDermott pointed to the bank’s three main focus areas in crypto: tokenization, reshaping financial markets, and the “profound” impact digital money will have on markets.
“The excitement on our part is… to see how this technology can impact many different parts of the financial system and have real commercial impact,” he added. “We’re in such an early stage in terms of adoption, but when you look at the market, you see the breadth of financial institutions that are building their digital asset teams and their digital asset strategies, be it at the Sell-side or on the buy-side, it’s just super exciting and I think there’s a real recognition there.”
Working 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 that I think was pretty important is really demonstrating that we can apply the technology in all regions,” McDermott said. “We’ve done something in Europe, and as we continue to expand, we’re very keen to do it on a broader basis around the world.”
CNBC was the first to report in November that Goldman Sachs has also partnered with crypto data company Coin Metrics and financial firm MSCI to create a new classification system called Datonomy, which McDermott said essentially provides a framework for investing in the new asset class.
“We felt this was a really important type of feature for the market,” McDermott said, describing Datonomy.
“We wanted to offer clients something that would give them the tools to do better analysis, and especially those who want to think about investing, just give them those skills or certainly the details that will enable them to do it smarter,” he said .
The collapse of FTX in late 2022 and the domino effect that wiped out other crypto companies helped traditional financial institutions like Goldman be presented with “more reasonable” valuations for potential investments in the technology underlying crypto, according to McDermott.
“There has been this precipitous drop in the valuation of a lot of companies related to the crypto marketplace,” McDermott said. “But really in the area that we’ve been focused on, blockchain infrastructure, we’ve continued to see some really interesting opportunities in well-run companies.”
McDermott noted that Goldman Sachs has made investments in the digital asset space, with a primary focus on blockchain infrastructure, and that the bank “sees some interesting valuation opportunities there that just seem a lot more reasonable.”
Goldman Sachs has 11 crypto companies in its portfolio, including Coin Metrics, infrastructure company Blockdaemon, and the bank’s recent investment, TRM Labs.
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