Crypto markets are undergoing a ‘flight to quality,’ says Goldman Sachs digital assets chief

Last 12 months’s havoc within the cryptocurrencies house has allowed for a “flight to quality” amongst crypto traders, Mathew McDermott, Goldman Sachs’ world head of digital belongings, stated on CNBC’s “Crypto World” on Friday.

“We do have a crypto buying and selling desk on the agency,” he said, noting that the bank only trades cash-settled derivatives, options and futures.

Cryptocurrencies suffered during 2022 as investors steered clear of risk assets. Bitcoin tanked more than 60% last year. The collapse of crypto exchange FTX, along with a washout among other crypto-related companies, also raised concerns on whether federal agencies need to step in and regulate the industry.

Since then, large investors who continue to participate in the space have become more discerning.

“What we’ve seen extra of our bigger purchasers desirous to onboard and commerce with what they in all probability understand to be a lot better regulated and capitalized entities,” McDermott added, noting that this has been a byproduct of last year.

Speaking with CNBC’s “Crypto World,” McDermott pointed to the bank’s three key areas of focus in crypto: tokenization, remaking the plumbing of financial markets and the “profound” effect that digital money will have across markets.

“The pleasure from our facet is … seeing how this expertise can affect many alternative elements of the monetary system and have an actual business affect,” he added. “We’re at such an early stage when it comes to its adoption, however as you look throughout {the marketplace} and also you see the breadth of economic establishments constructing out their digital asset groups, their digital asset methods, be that the promote facet or the purchase facet, it is simply tremendous thrilling and I believe there’s an actual recognition there.” 

Collaborating with two other banks, Goldman Sachs launched a tokenization platform that processed a $100 million dollar eurobond from the European Investment Bank. 

“One of the issues from my perspective that is sort of been fairly necessary is absolutely demonstrating that we will apply the expertise throughout all of the geographies,” McDermott said. “We’ve completed one thing in Europe and as we proceed to construct out, we’re very keen to try this extra broadly throughout the globe.” 

CNBC was first to report in November that Goldman Sachs also collaborated with crypto data firm Coin Metrics and financial firm MSCI to create a new classification system called Datonomy, which McDermott said essentially provides a framework for investment into the new asset class. 

“This we felt was a very necessary sort of characteristic for the market,” McDermott said, describing Datonomy. 

“We wished to supply one thing to the purchasers that gave them the instruments to sort of higher analyze, and notably those that want to sort of take into consideration investing, simply give them that ability set, or definitely the small print to allow them to do it in a extra clever method,” he said.

FTX’s collapse in late 2022 and the domino effect that wiped out other crypto companies, contributed to traditional financial institutions, like Goldman, being presented with “extra wise” valuations for potential investment in the technology that underpins crypto, according to McDermott.

“There’s been this precipitous fall within the valuation of many firms associated to the crypto market,” McDermott said. “But actually the world that we have been targeted on, blockchain infrastructure, we have continued to see some actually attention-grabbing alternatives in companies which can be nicely managed.”

McDermott noted that Goldman Sachs has made investments in the digital asset space, predominantly focusing on blockchain infrastructure and that the bank is “seeing some attention-grabbing alternatives there of valuations that simply look way more wise.”

Goldman Sachs has 11 crypto companies in its portfolio, together with Coin Metrics, infrastructure agency Blockdaemon and the financial institution’s most up-to-date funding TRM Labs.