Goldman Sachs Foresees Major Growth in Blockchain-Based Asset Trading: Report

Goldman Sachs (GS.N) is gearing up for a significant increase in the trading of blockchain-based assets within the next one to two years, signaling a major evolution in digital asset markets.

According to a Reuters report, Mathew McDermott, the bank’s global head of digital assets, stated that the Wall Street giant is not only preparing for a surge in trading volumes but is also witnessing a rising tide of interest in cryptocurrency derivatives among its clients.

McDermott Focused on Expanding Digital Asset Horizons

The market is buzzing with anticipation as it eagerly awaits the U.S. Securities and Exchange Commission’s decision regarding approving a spot Bitcoin exchange-traded fund (ETF). This move is expected to unlock fresh opportunities and entice more investors to cryptocurrencies.

Bitcoin has already seen a rise of over 50% this quarter. This surge is attributed to the growing interest from institutional clients, including hedge funds and asset managers, who increasingly weigh digital currencies’ potential.

McDermott, however, is looking beyond the immediate horizon of cryptocurrency. He is focused on developing a broader spectrum of digital assets, including issuing blockchain-based tokens representing traditional assets like bonds.

His statement underlines a “huge appetite” for digital assets, which has grown over the past year.

McDermott predicts a rise in blockchain-based trading volumes in the next 1-2 years, with significant market development expected in 3-5 years. However, he recognizes that transitioning most financial markets to blockchain is still a long-term goal.

According to a survey of Goldman Sachs clients, 16% of clients anticipate over 10% of financial markets will be tokenized within 3-5 years. The survey also notes that Goldman Sachs has a team dedicated to trading cryptocurrency derivatives for institutional clients, although this market is small.

Operational Efficiencies and De-Risking Financial Markets

Goldman Sachs’ exploration into blockchain technology is about embracing new asset classes and revolutionizing the underlying infrastructure of financial markets.

He stated that the use of blockchain could bring significant operational efficiencies, streamline settlement processes, and contribute to de-risking financial markets.

He added that if securities were traded via blockchain, collateral and liquidity could be sent between parties more quickly and precisely.

However, the journey towards a blockchain-dominant financial landscape has challenges. Despite various pilot projects, including issuing blockchain-based bonds, there is no routine issuance or established liquid secondary market.

McDermott also expressed his view that an ETF approval wouldn’t necessarily lead to an immediate and dramatic increase in liquidity and pricing. However, he noted the potential for this development to draw new institutional investors into the market.

He also emphasized the significance of the ability to engage with a familiar and scalable product, highlighting this as a positive step for the asset class.