Goldman Sachs provided some interesting insights about family offices’ interest in investing in crypto in a recently-released report.
A family office is “a privately held company that handles investment management and wealth management for a wealthy family, generally one with over $100 million in investable assets, with the goal being to effectively grow and transfer wealth across generations.”
The insights in this report come from Goldman’s first global survey of “family office stakeholders” and the financial services firm’s experience of working with such clients. The 150 survey respondents were based in the Americas (54%), Europe (23%) & the Middle East and Africa (23%), and Asia (23%).
According to the report, while most respondents have not yet invested in crypto, nearly half are thinking about getting into crypto in the future As for those respondents with no current crypto exposure, their main concern is suitability of cryptoassets as stores of value. There were also some who had reservations about “the underlying infrastructure (e.g., custody options and exchanges)” or their lack of understanding of the crypto space. Another issue that concerned some investors was the high energy consumption of Bitcoin mining.
Goldman went on to say that “some family offices are considering cryptocurrencies as a way to position for higher inflation, prolonged low rates, and other macroeconomic developments following a year of unprecedented global monetary and fiscal stimulus.”
On July 6, Business Insider reported that Goldman had said in a note to clients (released earlier that day) that Ether ($ETH) “currently looks like the cryptocurrency with the highest real use potential as Ethereum, the platform on which it is the native digital currency, is the most popular development platform for smart contract applications,” suggesting that it could one day take Bitcoin’s crown as the most valuable cryptocurrency.
As for gold, apparently Goldman had this to say:
“Gold is competing with crypto to the same extent it is competing with other risky assets such as equities and cyclical commodities. We view gold as a defensive inflation hedge and crypto as a risk-on inflation hedge.“
On June 18, CNBC reporter Hugh Son broke the news that Goldman Sachs had started trading Bitcoin futures on behalf of its clients with the help of Galaxy Digital.
Former hedge fund manager Mike Novogratz is the Founder and CEO of Galaxy Digital, “a diversified financial services and investment management innovator in the digital asset, cryptocurrency, and blockchain technology sector.”
When the CNBC reporter was asked whether this strategic partnership between Goldman Sachs and Galaxy Digital means that Goldman is bullish on Bitcoin or if it just an acknowledgement that its clients want to have some exposure to Bitcoin.
“It’s more of the latter. Clients — and we’re talking about sovereign wealth, we’re talking about pensions, obviously hedge funds, family offices — have been asking their investment banks ‘we want exposure, we want to play Bitcoin’, and for the most part, banks have had to say ‘we can’t do that yet, we’re looking into it, and we’re studying it’… so that changes now and has been changing is as Goldman has started up this new crypto trading desk last month…
“The news today is these are the first trades where you have Goldman, which is obviously super regulated — you know, very important, very central to the economy investment bank — dealing directly with a firm like Mike Novogratz’s crypto-centric firm, which is Galaxy, and so you have basically a step toward the maturation of this asset class, where you’re going to have more institutional players…
“Nobody wants to do something first at a bank, they always want to wait until somebody else does it, and in this case it’s Goldman, and then once they see that it works, all the other banks will jump in because they’ve been getting the inbound too from their clients, and I think that’s what this means. There’s an advance in the maturation of this asset class for institutional traders.“
The CNBC report said that these early trades involving Galaxy Digital “represent the first time that Goldman has used a digital assets firm as a counterparty since the investment bank set up its cryptocurrency desk last month, according to Galaxy co-president Damien Vanderwilt.”
Vanderwilt also said:
“You’re moving the market participants from being north of 90% retail, a huge chunk of which have access to ridiculous amounts of leverage, into an institutional community, who have proper, tried-and-tested rules and regulations about leverage, asset-liability mismatch and risk. The more activity that moves into the institutional community, the less volatility there will be.“
Vanderwilt is not surprised that Goldman is finally providing this service for its clients:
“If the phone rings enough times and clients are trying to get exposure, you eventually figure out how to do it for them safely, understanding that your role in the world is to intermediate exposure safely, not to act as a fiduciary.“
Vanderwilt also mentioned that Galaxy Digital will “serve as Goldman’s ‘liquidity provider’ – Wall Street parlance for a company that provides quotes for buy and sell orders – on CME Group bitcoin futures.”
The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.