• Approval of bitcoin ETFs was a “big psychological turning point,” reigniting retail trading interest in crypto and bringing in new types of institutions.
  • Tokenization is a growing trend due to the sheer benefits of “digitizing the lifecycle” of asset issuance by improving firms’ operating efficiency and increasing liquidity.
  • Crypto has the ability to transform parts of the financial system to operate in more efficiently.

As a researcher with a background in finance and experience following the crypto industry, I believe that the approval of bitcoin ETFs marked a significant turning point for the crypto market. It rekindled retail trading interest in cryptocurrencies and brought in new types of institutional investors, leading to increased liquidity and operating efficiency.


In Austin, Texas: Goldman Sachs, the esteemed investment banking firm with a rich history spanning 150 years, is expanding its involvement in cryptocurrencies. This revelation stems from Mathew McDermott, the global head of digital assets at Goldman Sachs, who has been with the bank for nearly two decades. McDermott played a pivotal role in establishing the digital asset desk within the firm back in 2021 and has since spearheaded initiatives to offer a range of products and services such as cash-settled derivatives, options, and futures trading in cryptocurrencies.

As a crypto investor and member of the boards of Coin Metrics and HQLAx, as well as an advisor to One River Digital and Elwood Technologies, I shared my insights at Consensus 2024 on various topics. Among them were the prospects for other crypto-based exchange-traded funds (ETFs) following ether (ETH), the most promising areas for institutions like Goldman Sachs, and the growing trend of tokenization.

ETFs and beyond

As a crypto investor, I’ve witnessed firsthand the phenomenal impact of the bitcoin ETF. Its success has rekindled retail traders’ enthusiasm for cryptocurrencies as a whole. Moreover, it has attracted new institutional investors, leading to innovative strategies and plays in the market. Personally, I believe this was a significant psychological milestone for the crypto industry.

Could the SEC’s approval of ETH ETF applications from exchanges like Cboe, NYSE Arca, and Nasdaq signal a broader trend for the acceptance of crypto-backed products in the US? The securities regulatory body has given its green light to these proposals, but it may take several months before wannabe issuers such as Ark Invest, Bitwise, BlackRock, Fidelity, and Grayscale see their S-1 filings approved.
McDermott expressed optimism, stating, “ETH may soon be granted the green light to be fully tradeable as an ETF, marking a logical advancement in its development.” This potential approval could possibly pave the way for other cryptocurrencies like Solana (SOL) to follow suit. However, it’s uncertain if this will definitely happen due to the current market dominance of Bitcoin and Ethereum.
See also: 3 Questions About the SEC’s Abrupt ETH ETF Approval

“Based on our experience with clients, they primarily concentrate on bitcoin and Ethereum for trading due to the availability of futures contracts on CME. This focus likely contributes to the optimistic outlook for Ethereum ETFs. Regarding other cryptocurrencies, there’s potential for positivity, but it may be premature to make definitive statements at this time.”

Tokenization

Goldman was among the first firms to explore tokenization, but it hasn’t fully adopted open blockchains yet. McDermott explained that their shift towards private, permissioned chains starting in 2021 was driven more by legal uncertainties than a firm ideological stance.

“Our priority is understanding what our clients aim to achieve, which we translate into ‘how best can we cater to their needs.’ Having our own platform enables us to respond more promptly as our clients’ requirements may shift,” he explained. Due to the dynamic nature of wealth managers and institutional investors’ objectives, the company retains flexibility in deciding on its final course of action.

In the end, McDermott believes that tokenization will become more prevalent because of the numerous advantages it offers for digitizing the entire process of asset creation. This not only enhances business productivity but also expands the pool of potential investors, thereby increasing liquidity.

See also: The Benefits of Assets Tokenization

He expressed that the ability to develop a product capable of being divided into smaller parts for investment by a larger pool of investors is highly effective. This expansion of the investor base not only increases the reach of the distribution channel but also enhances secondary market liquidity.

Where to next?

McDermott stated that Goldman is making significant strides towards demonstrating the commercial feasibility of banks utilizing blockchains, despite the fact that many of the current offerings are quite basic. However, if the tokenization of traditional asset classes such as money market funds progresses, this would result in an extra $4.7 trillion in collateral available to generate derivatives and repurchase agreements. According to him, this is a tremendously potent development.

He explained that as you gain a better understanding of the regulations, an increased number of sellers will join in and demonstrate the market’s potential on-chain. Subsequently, you can expand into other asset classes, such as real estate and green debt issuance, where the value proposition is particularly attractive.

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2024-05-29 21:41