Goldman Sachs’ head of crypto trading says investors are “coming back” to the bank to trade crypto after being spooked by crises at digital asset firms such as FTX.
Andrei Kazantsev told Financial news that traditional hedge fund and asset manager clients had previously flirted with crypto firms but are now returning to institutions like Goldman because of “counterparty risk” in the digital asset space. He said the process was a “flight to quality”.
Kazantsev’s comments on United Nations November 9 at the London Token 2049 crypto conference came hours before crypto giant Binance pulled out of a proposed deal to save rival FTX, following a liquidity crisis at the latter.
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FTX has been the subject of what was effectively a bank run, as clients rushed to withdraw funds from the trading platform following reports that they were facing problems due to losses at Alameda, a related trading firm.
As the Sam Bankman-Fried-owned company suffered mass withdrawals, Binance announced it would acquire the company, pending due diligence. But Binance, the world’s largest crypto exchange, said on November 9 that it was withdrawing from the deal.
The events have shaken an industry that is already marked by trauma this year. Firms such as crypto lender Celsius and broker Voyager Digital have filed for bankruptcy protection in recent months following a price crash in the second quarter of 2022.
“Initially, our hope was to be able to support FTX’s customers in providing liquidity, but the issues are beyond our control or ability to help,” Binance said in a statement.
The sector lost another $180 billion in market value in recent days, according to CoinMarketCap data. Crypto hedge funds also took a massive hit from the latest market dive on the FTX news, United Nations reported November 9.
During a panel discussion earlier in the day, Kazantsev told the conference that counterparty risk is “starting to peak” for traditional hedge funds and asset managers. “They want to see names that they are already comfortable with to be the counterparty in the crypto space.”
However, that has not scared traditional financial firms away from the sector as a whole, he added.
“There is a growing understanding that this is a place where they need to be active, where they need to participate on behalf of their clients. They are willing to use institutions like ours to meet their demands,” Kazantsev said.
Goldman Sachs is one of the few major investment banks that offers trading services for crypto derivatives, and it does not yet offer spot trading in assets such as bitcoin or ether. It has a team of about 50 people in its crypto trading team, plus about 20 engineers.
Nomura wants to take a similar position on digital assets and is building a 50-person team for its crypto spin-out Laser Digital. The firm aims to start trading digital assets early next year as it makes a major push into the sector.
Elsewhere at the Token 2049 conference, industry leaders talked about how the sector has matured as a result of the turbulent year. Visitors to the event were greeted by two live alpacas at the entrance, while sports cars – a yellow Lamborghini, a Bentley and a Rolls-Royce – sat outside, bearing the branding of crypto exchange SuperEx.
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