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Goldman Sachs is expanding its presence in the embryonic market for digital asset derivatives.
CNBC was the first to disclose that the firm is the first big U.S. bank to trade cryptocurrency over the counter. The two firms announced Monday that they have traded a bitcoin-linked product known as a non-deliverable option with crypto merchant bank Galaxy Digital.
Because of the nature of OTC deals, the move is considered as a significant step forward in the development of crypto markets for institutional investors. According to the firms, by acting as a principal in the trades, Goldman is taking on more risk than the exchange-based CME Group bitcoin products it began trading last year.
According to Galaxy co-President Damien Vanderwilt, the fact that Goldman Sachs is involved, a leading participant in global traditional asset markets, indicates that the asset class has matured for institutional players such as hedge funds.
“This trade represents the first step that banks have taken to offer direct, customizable exposures to the crypto market on behalf of their clients,” Vanderwilt said in an interview.
The options trades are “much more systematically relevant to markets compared to cleared futures or other exchange-based products,” Vanderwilt said. “At a high level, that’s because of the implications of the risk banks are taking on; they’re implying their trust in crypto’s maturity to date.”
Hedge funds have been looking for derivative exposure to bitcoin, either to make price bets without directly owning it or to hedge current exposure to it, according to the firms.
Crypto-native enterprises such as Galaxy, Genesis, and GSR Markets dominate the market for these securities.
“We are pleased to have executed our first cash-settled cryptocurrency options trade with Galaxy,” Max Minton, Goldman’s Asia Pacific head of digital assets, said in a statement. “This is an important development in our digital assets capabilities and for the broader evolution of the asset class.”
Goldman’s global head of crypto trading Andrei Kazantsev stated in December that the bank has observed strong demand for digital asset options.
“The next big step that we are envisioning is the development of options markets,” he said.