Institutional demand driving crypto boom: Goldman

Institutional demand driving crypto boom: Goldman

Institutional demand driving crypto boom: Goldman

Bloomberg

Goldman Sachs Group Inc is seeing substantial demand for digital assets from institutions as it works to restart its cryptocurrency trading desk.

In a survey of nearly 300 clients by the firm, 40 percent have exposure to crypto, said Matt McDermott, global head of digital assets for Goldman Sachs Global Markets Division, speaking on a podcast.

The situation is different now compared with the 2017 bitcoin bubble, due to “huge” institutional demand across different industry types and from private banking clients, he said.

A trader passes in front of Goldman Sachs Group Inc signage in front of New York Stock Exchange (NYSE) in the Financial District of New York on Friday. The company said it is seeing substantial demand for digital assets from institutions as it works to restart its cryptocurrency trading desk. Photo: Michael Nagle, Bloomberg

McDermott confirmed plans reported last week for Goldman to restart its crypto trading desk, which he said would be “quite narrow initially,” with a focus on areas such as CME Group Inc futures.

He said that US banks need to cope with regulations that bar them from trading physical cryptocurrencies.

Cryptocurrency enthusiasts argue that digital tokens and the underlying blockchain technology are gaining acceptance among more mainstream institutions.

The derivatives market and new investment products have made digital assets more easily accessible. Some strategists posit that the asset class is a potential diversifier for portfolios, while others are more skeptical and blame speculators for inflating a possible bubble in bitcoin and other cryptos.

Bitcoin yesterday rose as much as 3.4 percent in Asia, while ether gained as much as 5.3 percent to the highest since Feb. 23.

Blockchain technology offers “a real diverse set of opportunities for the financial industry,” McDermott said.

As for prices, 76 percent of those surveyed see bitcoin ending this year between US$40,000 and US$100,000, McDermott said.

However, 22 percent expect it to end the year above US$100,000.

Goldman Sachs to re-open crypto desk as institutional demand surges

Goldman Sachs is to re-activate its crypto trading desk after detecting huge institutional demand for bitcoin among its client base.

In a podcast, Matt McDermott, Goldman Sachs’ head of digital assets, says that a UK survey of 300 of the firm’s clients found that 40% of them have holdings in crypto.

Fully 61 percent expect their digital asset holdings to increase over the next year, with bitcoin leading the way.

“I think it’s pretty fair to say that all of our institutional client discussion is really focused around bitcoin,” he says. “Where the questions are not really ‘what is it?’, thankfully, it’s more about how can we get exposure, what are the instruments we can transact, and what is Goldman offering today?”

A recent research primer by JPMorgan suggested that bitcoin could rally as high as $146,000 in the long term as it competes with gold as an ‘alternative’ currency.

McDermott believes that bitcoin’s current rally is markedly different than the late 2017 bubble, that saw it zoom close to $20,000 a coin, only to sink as low as $3,122 the next year. This is largely because of demand from private banking clients and institutions.

“When we talk about institutional demand, we talk about the whole cross section of the industry sectors,” he says. “And when I talk about the broad spectrum, I’m referring to hedge funds, to asset managers, to macro funds, to banks, to corporate treasurers, insurance, and pension funds.”

Goldman Sachs: Institutional crypto interest on the rise

Institutional interest in cryptocurrencies is on the rise, research claims.

A client survey by Goldman Sachs found 40 per cent of institutional investors currently have exposure to cryptocurrencies and 61 per cent expect their digital asset holdings to increase in the next 12 to 24 month.

The investment bank found that Bitcoin was the most popular cryptoasset (42 per cent) followed by Ethereum ether (29 per cent) and stablecoins (13 per cent).

More than a third, 35 per cent, of institutional investors believe spot pricing and volumes data would be the most helpful to better evaluate a potential investment in cryptocurrencies.

Another 29 per cent think the most important factor that drove the recent Bitcoin price action was the macro backdrop, while 57 per cent put it down to positive news, such as institutions investing in or offering additional products.

In 12 months’ time, more than half (54 per cent) believe the price of Bitcoin will be between $40,000 to $100,000 (£28,900 to £72,300) while 22 per cent forecast it will be less than $100,000.

A third of investors believe that regulation, internal investment and mandate permissions are the greatest hurdles to start allocating to digital assets, and 24 per cent believe a lack of well-regulated, investable assets is the greatest hurdle.

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“What’s been particularly interesting of the respondents, 40 per cent of the clients currently have exposure to cryptocurrencies,” Matt McDermott, global head of digital assets for Goldman Sachs global markets division, said in a podcast.

“That could be through a variety of different mediums – the physical through derivatives, through securities products, or other offerings in the market. That seemed actually a little high to me.

“But I thought that was kind of very reflective of the demand we’ve seen over the past three to six months.”

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McDermott said Goldman Sachs, which is working to go live with its crypto trading desk, fully expects crypto incumbents to continue making huge strides following their progress over the last couple of years.

He added that the underlying technology for the blockchains represents a huge opportunity for the financial services industry.

Read more: Treasury consultation could pave the way for P2P crypto lending

There are several peer-to-peer lending platforms operating in the cryptocurrency space.

Aave is an Ethereum-based lending platform while JustUs loans can be invested in via purchasing its cryptocurrency BiPs through its sister company Moneybrain.