Exclusive: Goldman Sachs Chasing Bargain Crypto Firms After FTX Fiasco

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 exchange hit valuations and dampened investor interest.

The FTX implosion has increased the need for more trusted, regulated cryptocurrency players, and big banks are seeing an opportunity to boost business, Mathew McDermott, Goldman’s head of digital assets, told Reuters.

Goldman is conducting due diligence on a number of different crypto firms, he added, without giving details.

“We’re seeing some really interesting opportunities at a much more reasonable price,” McDermott said in an interview last month.

FTX filed for Chapter 11 bankruptcy protection in the United States on Nov. 11 following its dramatic collapse, sparking fears of contagion and fueling calls for more crypto regulation.

“It definitely set the market back in terms of sentiment, there’s absolutely no doubt about that,” McDermott said. “FTX has been a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to work.”

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 continue investing amid the sector shakeout shows it has a long-term vision chance sees.

Its CEO, David Solomon, told CNBC on Nov. 10 as the FTX drama unfolded that while he viewed cryptocurrencies as “highly speculative,” he saw a lot of potential in the underlying technology as its infrastructure became more formalized.

Competitors are more skeptical.

“I don’t think it’s a fad or going away, but I can’t give it intrinsic value,” Morgan Stanley (MS.N) CEO James Gorman said at the Reuters NEXT conference on Dec. 1.

HSBC (HSBA.L) CEO Noel Quinn, meanwhile, said at a banking conference in London last week that he has no plans to expand into crypto trading or retail investing.

Goldman has invested in 11 digital asset companies that provide services like compliance, cryptocurrency data, and blockchain management.

McDermott, who competes in triathlons in his free time, joined Goldman in 2005 and rose to lead the digital assets business after serving as head of cross-asset financing.

His team has grown to more than 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, which aims to classify digital assets based on their usage.

The company is also building its own private distributed ledger technology, McDermott said.

“TRUSTED” PLAYERS

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 string of high-profile corporate bankruptcies hit. It was last at $865 billion on December 5.

The ripple effects of FTX’s collapse have boosted Goldman’s trading volume, McDermott said, as investors sought to trade with regulated and well-capitalized counterparties.

“What has increased is the number of financial institutions that want to trade with us,” he said. “I suspect some of them were FTX traded, but I can’t say that with cast-iron certainty.”

Goldman is also seeing hiring opportunities as crypto and tech companies lay off staff, McDermott said, though the bank is happy with the size of its team for now.

Others also see the crypto meltdown as an opportunity to build their business.

Britannia Financial Group is expanding its cryptocurrency-related services, its chief executive, Mark Bruce, told Reuters.

The London-based company aims to serve clients who would like to diversify into digital currencies but have never done so before, Bruce said. It will also appeal to investors who are very familiar with the assets but have become nervous about storing funds on crypto exchanges since the collapse of FTX.

Britannia is applying for more licenses to provide crypto services, such as businesses for wealthy individuals, he said

“We’ve seen greater customer interest since FTX’s demise,” he said. “Customers have lost trust in some of the younger crypto-only companies in the industry and are looking for more trustworthy counterparties.”

Reporting by Iain Withers and Lawrence White, editing by Lananh Nguyen and Alexander Smith

Our standards: The Thomson Reuters Trust Principles.

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