LONDON, Dec. 6 (Reuters) – Goldman Sachs (GS.N) plans to spend tens of millions of dollars to buy or invest in crypto companies after the collapse of the FTX stock market has tarnished valuations and sparked investor interest tempered.
The implosion of FTX has increased the need for more reliable, regulated cryptocurrency players, and major banks see an opportunity to pick up business, Mathew McDermott, Goldman’s head of digital assets, told Reuters.
Goldman is doing due diligence on a number of different crypto companies, he added, without giving details.
“We see some really interesting opportunities, much more sensibly priced,” McDermott said in an interview last month.
FTX filed for Chapter 11 bankruptcy protection in the United States on November 11 following the dramatic collapse, fueling contagion fears and amplifying calls for more crypto regulation.
“It definitely set the market back in terms of sentiment, there’s absolutely no question about that,” McDermott said. “FTX has been a poster child in many parts of the ecosystem. But again, the underlying technology continues to deliver.”
While the amount Goldman could potentially invest isn’t huge for the Wall Street giant, which made $21.6 billion last year, its willingness to keep investing during the industry’s shakeout shows it has an opportunity to long term feel.
Its CEO David Solomon told CNBC on Nov. 10, as the FTX drama unfolded, that while he considers cryptocurrencies “highly speculative,” he sees a lot of potential in the underlying technology as the infrastructure becomes more formalized.
Rivals are more skeptical.
“I don’t think it’s fad or going away, but I can’t put any intrinsic value on it,” Morgan Stanley (MS.N) CEO James Gorman said at the Reuters NEXT conference Dec. 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 lead its digital asset business after serving as head of cross-asset financing.
His team has grown to over 70 people, including a seven-person crypto options and derivatives trading desk.
Goldman Sachs has also partnered with MSCI and Coin Metrics to launch data service datonomy, aimed at classifying digital assets based on how they are used.
The company is also building its own private distributed ledger technology, McDermott said.
According to data site CoinMarketCap, the global cryptocurrency market peaked at $2.9 trillion in late 2021, but has lost about $2 trillion this year as central banks tightened lending and a series of high-profile corporate failures hit. It last stood at $865 billion on December 5.
The ripple effects of the FTX 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 willing to trade with us,” he said. “I suspect some of them traded with FTX, but I can’t say that with absolute certainty.”
Goldman also sees hiring opportunities as crypto and technology companies shed staff, McDermott said, though the bank is happy with the size of its team for now.
Others also see the crypto crisis as an opportunity to build their business.
Britannia Financial Group is building out its cryptocurrency-related services, CEO Mark Bruce told Reuters.
The London-based company aims to serve clients who are eager to diversify into digital currencies but have never done so before, Bruce said. It will also cater to investors who are very familiar with the assets but have become nervous about storing money on crypto exchanges since the collapse of FTX.
Britannia is applying for more licenses to provide crypto services, such as doing deals for wealthy individuals, he said
“We’ve seen more customer interest since the demise of FTX,” he said. “Clients have lost trust in some of the younger companies in the industry that are purely into crypto and are looking for more trusted counterparties.”
Reporting by Iain Withers and Lawrence White, editing by Lananh Nguyen and Alexander Smith
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