During a recent interview, Mathew McDermott, head of Digital Assets for Goldman Sachs’ Global Markets Division, talked about Bitcoin.
His comments came during an interview recorded on March 3 for an episode (titled: “Markets Update: Cryptocurrency Trading“) of the podcast “Exchanges at Goldman Sachs” that was released last Friday (March 5).
In this article, we look at some highlights from this interesting interview.
Overall Institutional Interest in Bitcoin
“In terms of kind of institutional demand, we have seen no signs of that abating, and when we talk about institutional demand, we talk about the whole cross section of the industry sectors. The team have fielded well over 300 conversations 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.
“And I think it’s pretty fair to say that all of that institutional client discussion is really focused around Bitcoin, but 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…
“As you can imagine, the different industry sectors have different perspectives, and are at different stages of their evolution.
Demand From Corporate Treasurers
“They’re interested in two different aspects. Firstly, should they be invested in Bitcoin on their balance sheet and as they think through that, the key drivers from their perspective are negative rates, if they’ve got cash here on deposit where negative rates are being applied, and then just the general fears around asset devaluation…
“And then secondly, they’re also thinking about it particularly in the context of Tesla’s announcement, you know, should we consider it as a payment mechanism.“
Demand From Hedge Funds, Macro Funds, and Asset Managers
“Yeah hedge funds, just taking them first, I mean, yes, they have been active, but I think there’s been a reawakening. So there’s a lot of talk, but we’ve definitely seen a lot more activity across that industry sector over the last three to four months, and then when you look at the macro funds and the asset managers, it’s broadly the same… that they’ve really started to think through all the different investment pieces, and so from my perspective, talking to those clients, they’re much clearer on why they want to invest…
“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…
Results of Survey of Across Goldman’s Institutional Client Base
“What’s been particularly interesting of the [early 300] respondents, 40% of the clients currently have exposure to cryptocurrencies. And that could be through a variety of different mediums: the physical, through derivatives, through securities products, or other offerings in the market.
“And so 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 last three to six months. I thought another interesting stat which really progresses what we mentioned earlier was that 61% of the clients expect their digital asset holdings to increase over the next year.
“And while we’re on this, I think it would be a little remiss of me also not to mention I guess the demand that we see across our wealth management plan base. You know, we see continued appetite both internally and externally through the private bank. So, yes, we see a huge amount of demand institutionally, but we’re also seeing that reflected in the private world management space as well.“
How Client Discussions Today Are Different From 2017
“2017 was very much a retail-driven market. This time around, as mentioned, we’ve just seen a huge volume of institutional demand across the broad spectrum of different industry types, and as a function, you know, you’re seeing in incumbent banks now explore ways that they can develop products to satisfy that client demand, enabling them to gain exposure to the different cryptocurrencies and also be mindful of what is possible from a regulatory perspective.
“At GS, we’re exploring a number of different options to facilitate that demand. And as mentioned earlier in the week in the press, we’re actually going live with our crypto trading desk, which will be quite narrow initially, but we’ll focus on CME futures and on deliverable forwards, and we’re also now disseminating Bitcoin content to our institutional clients through our marquee platform.“
Regulatory Obstacles That Are Preventing Goldman From Taking a Bigger Role in Crypto
“Yeah, I think one of the key factors for the US banks is the inability to trade the physical, and as we’ve seen from a lot of demand, particularly kind of with the hedge funds, some of the asset managers, and the macro funds, is a desire to get access to the physical. So, that’s been something that we’ve had to think cleverly how we can facilitate that demand in a different way.
“In Asia, for example, there are certain jurisdictions where that is permissible, where you can trade the physical, and we’re seeing certain banks look at developing institutional exchanges and other avenues to execute the physical with institutional clients.“
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.