Goldman Sachs Leads Digital Assets on Investment and Future of Crypto

• Mathew McDermott oversees Goldman Sachs’ crypto and blockchain efforts.
• He says the worst is not over for crypto startups.
• McDermott outlined how the bank thinks about crypto and blockchain investments.

The worst is not yet over for the crypto industry, according to Goldman Sachs’ global head of digital assets.

If 2021 was the year of crypto, then 2022 was the year the music stopped for the industry. Crypto went from a $3 trillion industry that garnered billions in funding from VCs and Wall Street giants to an industry plagued by layoffs, high-profile explosions, falling valuations and legal turmoil in 2022.

And it could still get worse.

“We’re going to see a little more pain this year as we see more people struggling” in the crypto industry, Mathew McDermott, global head of digital assets at Goldman Sachs, told Insider.

“The companies that just don’t have the right business model, the right management team, they’re going to struggle to get refinanced,” he added.

With investors turning away from crypto, and with those still interested becoming more careful with due diligence, many companies are going out of business, a prominent crypto VC told Insider.

But there can be a pleasure in the crypto blood: Startups running out of runway may be looking for an exit.

“When we think about potential investments, valuations just look a lot more reasonable,” McDermott said.

Wall Street titans are no strangers to cryptocurrency and blockchain. Many offer their own crypto services from trading desks to wealth management and invest billions of dollars in promising startups. Because crypto and other digital asset startups operate on a different infrastructure than traditional financial players, their products require a different type of back-end tools than traditional assets. That has led many firms to collaborate or invest in such technology as opposed to building it from scratch in-house.

McDermott, whose team has made 11 such investments in the crypto and blockchain space, sharpens his pencil as he keeps an eye on potential investment opportunities.

“We have, where it makes strategic sense for the firm, the ability to deploy capital,” McDermott said. “Where we think it’s a very good strategic fit for what we’re objectively looking to do, and the price is appropriate, then that’s something we do due diligence and explore an investment where it’s appropriate.”

Inside Goldman’s digital asset business

Goldman has made several investments in blockchain startups, from crypto data player Coin Metrics to One River Digital Asset Management, which will become Coinbase Asset Management after the crypto exchange’s acquisition of the startup.

It is also equally focused on developing its own IP in-house and has a research and development team to identify existential threats in the market or investigate technologies that could have a profound impact on the bank’s businesses, McDermott said.

And despite the pullback in crypto among some traditional financial firms — Visa and Mastercard are reportedly on pause in their crypto partnerships — Goldman remains steadfast in its crypto push, McDermott said.

“We’ve always been more focused as a business on the application of the underlying technology, because that’s where we’ve seen the biggest opportunity,” McDermott said, adding that there has been no change in commitment from the top of Goldman. Sachs in the midst of the crypto downturn. Goldman, despite shedding 3,200 employees in January, is open to hiring in its digital assets team, which currently has about 70 people, according to a Bloomberg report.

Goldman’s digital asset initiatives have focused on the tokenization of various asset classes, or representing real-world values ​​as digital tokens on blockchain networks. The process is intended to provide more transparency and efficiency in the issuance and trading of securities. The bank also has a crypto trading desk to offer its customers cash-settled derivatives, options and futures. McDermott’s team works across the bank’s business lines, but most of the action is in asset and wealth management or global markets, he said.

“The way I built the business is to make sure there are different parts of the business where we can start generating revenue today,” said McDermott, who added that he expects his team to be profitable this year.

“In fact, as a business in the first three years, we have been self-sufficient where the revenue has covered compensation and all relevant costs that have been allocated to the business, and I think that has been very important to me. It gives us credibility, ” he added.