Goldman Sachs increases crypto exposure with launch of new Bitcoin derivatives

• Goldman Sachs is now offering Bitcoin non-deliverable forwards to institutional investors.
• To reduce its risks, the global investment bank is buying and selling Bitcoin futures in block trades on CME.
• The Wall Street giant quietly started to offer crypto derivatives to clients last month.

Goldman Sachs has reportedly been providing institutional investors a way to place bets on Bitcoin price with a new derivatives offering. 

Goldman Sachs focuses on expanding Bitcoin offerings

Last month, the investment banking giant began offering trading with non-deliverable forwards, a derivative tied to the Bitcoin price. These derivatives are contracts between two parties that agree to settle the difference between the spot price and the contracted price at a specific date. 

The contracts pay in cash, and Goldman clients would be able to speculate on the Bitcoin price. On the other hand, the global investment bank with over $2 trillion in assets under management will protect itself by buying Bitcoin futures in block trades on the Chicago Mercantile Exchange (CME) using Cumberland DRW as its trading partner. 

Max Minton, Goldman’s Asia-Pacific head of digital assets, said:

Institutional demand continues to grow significantly in this space, and being able to work with partners like Cumberland will help us expand our capabilities.

Minton added that the new offering paves the firm’s way to evolve its nascent cash-settled cryptocurrency capabilities. Goldman Sachs’ partnership with Cumberland also shows the eagerness to work with external firms to increase the bank’s capacity to help large investors take positions with the non-deliverable forwards, according to sources familiar with the matter. 

Goldman Sachs restarted its trading desk this year to help clients deal in publicly traded futures related to Bitcoin. The Wall Street giant also recently started to offer its wealthiest clients access to a range of investments in the leading cryptocurrency. 

As Bitcoin derivatives are settled in cash, the latest offering does not require Goldman Sachs to deal with physical BTC. Similar to the Morgan Stanley and JPMorgan trusts, the goal is to provide customers access to products that track the volatility of the pioneer cryptocurrency’s price. 

While banks are concerned about the regulatory hurdles of holding Bitcoin, Goldman Sachs could offer hedge fund clients exchange-traded notes based on BTC or access to the Grayscale Bitcoin Trust. 

Goldman’s entrance into the crypto space is a sign of how the industry is maturing, said Justin Chow, global head of business development for Cumberland DRW. He added:

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.

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