Goldman Sachs digital asset chief lays out blockchain strategy

Last year’s chaos in the cryptocurrency space has enabled a “flight to quality” among crypto investors, Mathew McDermott, Goldman Sachs’ global head of digital assets, said on CNBC’s “Crypto World” Friday.

“We have a crypto trading desk in the firm,” he said, noting that the bank only deals in cash-settled derivatives, options and futures.

Cryptocurrencies suffered during 2022 as investors steered away from risky assets. Bitcoin lost more than 60% last year. The collapse of crypto exchange FTX, along with a purge among other crypto-related companies, also raised concerns about 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 more of our larger clients eager to get on board and trade what they probably perceive to be much better regulated and capitalized entities,” McDermott added, noting that this has been a byproduct of last year.

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

“The excitement on our part is … to see how this technology can affect many different parts of the financial system and have a real commercial impact,” he added. “We’re at such an early stage in terms of its use, but when you look across the market and you see the breadth of financial institutions that are building out their digital asset teams, their digital asset strategies, whether it’s the sell side or the buy side, it’s just super exciting and I think that’s a real recognition there.”

Goldman Sachs partnered with two other banks and launched a tokenization platform that processed a $100 million Eurobond from the European Investment Bank.

“One of the things from my perspective that’s been pretty important is to really demonstrate that we can use the technology across all geographies,” McDermott said. “We’ve done something in Europe and as we continue to build out, we’re very keen to do it more broadly across the world.”

CNBC was the first to report in November that Goldman Sachs also partnered 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 investing in the new asset class.

“This we felt was a very important type of feature for the market,” McDermott said, describing Datonomy.

“We wanted to give something to the clients that gave them the tools to analyze better, and especially those who want to think about investing, just give them that skill set, or certainly the details to enable them to do that. on a more intelligent way,” he said.

FTX’s collapse in late 2022 and the domino effect that wiped out other crypto companies helped traditional financial institutions, such as Goldman, be presented with “more reasonable” valuations for potential investments in the technology underpinning crypto, according to McDermott.

“There has been a sharp drop in the valuation of many companies related to the crypto market,” McDermott said. “But really the area that we’ve been focused on, blockchain infrastructure, we’ve continued to see some really interesting opportunities in businesses that are well managed.”

McDermott noted that Goldman Sachs has made investments in the digital asset space, mainly focusing on blockchain infrastructure, and that the bank “sees some interesting opportunities there for valuations that just look a lot more reasonable.”

Goldman Sachs has 11 crypto companies in its portfolio, including Coin Metrics, infrastructure firm Blockdaemon and the bank’s latest investment TRM Labs.