US investment bank Goldman Sachs Group launched Bitcoin-tied derivatives trading to exploit profit opportunities from the $1 trillion Bitcoin market by allowing institutional investors to place big bets, Bloomberg reports.
The launch of trading with non-deliverable forwards (NDFs) followed the setting up of a trading desk by Goldman Sachs this year to help its clients deal in futures based on Bitcoin. In March, Goldman hinted at preparing to offer its private wealth clients additional vehicles related to crypto markets and the introduction of Bitcoin-tied NDFs more than delivered on that.
As the NDFs settle in cash, Goldman Sachs, which is not allowed by regulation to hold Bitcoin outright, found a way around this by partnering with trading firm Cumberland DRW to buy and sell Bitcoin futures in block trades on CME Group in a move that dramatically expands on the bank’s capabilities to facilitate taking positions by big investors.
“Goldman Sachs serves as a bellwether of how sophisticated, institutional investors approach shifts in the market. We’ve seen rapid adoption and interest in crypto from more traditional financial firms this year, and Goldman’s entrance into the space is yet another sign of how it’s maturing.”Justin Chow, Global Head of Business Development, Cumberland DRW
According to people in the know who prefer to remain anonymous, the partnership between Goldman Sachs and Cumberland proves the investment bank’s willingness to work with outside firms to help it fulfill these needs of institutional investors.
“Institutional demand continues to grow significantly in this space, and being able to work with partners like Cumberland will help us expand our capabilities. The new offering is “paving the way for us to evolve our nascent cash-settled crypto-currency capabilities.”Max Minton, Head of Digital Assets, Asia-Pacific, Goldman Sachs
Banks Change Stance against Bitcoin
The cash-settled NDFs offered by Goldman Sachs do not require the bank to deal with physical Bitcoin, much like similar vehicles introduced by Morgan Stanley and JPMorgan which track price movements of Bitcoin and utilize third parties to buy and hold the underlying digital asset.
For more than a decade, Bitcoin was considered as a payment vehicle for criminals, drug dealers and money launderers by the banking world, with one investment bank executive, JP Morgan Chase Co-CEO Jamie Dimon, threatening to fire any of his traders who engage in buying or selling the digital currency.
However, huge price gains at Bitcoin managed to have the banking world change its stance. Goldman Sachs, Morgan Stanley and JPMorgan are also working on a trust product tied to the digital asset, while rumors have it that Goldman Sachs’ next step will be to offer hedge funds Bitcoin-based exchange-traded notes or access to the Grayscale Bitcoin Trust.