Exclusive: Goldman Sachs on the hunt for cheap crypto firms after FTX fiasco

LONDON, Dec 6 (Reuters) – Goldman Sachs ( GS.N ) plans to spend tens of millions of dollars buying or investing in crypto companies after the FTX exchange’s collapse hit valuations and dampened investor interest.

FTX̵[ads1]7;s implosion has increased the need for more reliable, regulated cryptocurrency players, and big banks see an opportunity to pick up business, Mathew McDermott, Goldman’s head of digital assets, told Reuters.

Goldman is doing due diligence on a number of different crypto firms, he added, without providing details.

“We’re seeing some really interesting opportunities, priced much more sensibly,” McDermott said in an interview last month.

FTX filed for Chapter 11 bankruptcy protection in the US on November 11 following its dramatic collapse, sparking fears of contagion and intensifying calls for more crypto regulation.

“It’s definitely set the market back in terms of sentiment, there’s absolutely no question about that,” McDermott said. “FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to work.”

While the amount Goldman could potentially invest isn’t huge for the Wall Street giant, which earned $21.6 billion last year, its willingness to keep investing amid the sector shake-up shows it sees a long-term opportunity.

CEO David Solomon told CNBC on Nov. 10, as the FTX drama unfolded, that while he views cryptocurrencies as “highly speculative,” he sees a lot of potential in the underlying technology as the infrastructure becomes more formalized.

Rivals are more skeptical.

“I don’t think it’s a fad or going away, but I can’t put an intrinsic value on it,” Morgan Stanley ( MS.N ) Chief Executive James Gorman said at the Reuters NEXT conference on Dec. 1.

HSBC ( HSBA.L ) Chief Executive Noel Quinn, meanwhile, told a banking conference in London last week that he has no plans to expand into crypto trading or retail investing.

Goldman has invested in 11 digital asset companies that provide services such as compliance, cryptocurrency data and blockchain management.

McDermott, who competes in triathlons in his spare time, joined Goldman in 2005 and rose to run its digital asset business after serving as head of cross asset financing.

His team has grown to more than 70 people, including a seven-strong crypto options and derivatives trading desk.

Goldman Sachs has also together with MSCI and Coin Metrics launched data service datonomy, aimed at classifying digital assets based on how they are used.

The firm is also building its own private distributed ledger technology, McDermott said.

‘POLITERATED’ PLAYERS

The global cryptocurrency market peaked at $2.9 trillion at the end of 2021, according to data website CoinMarketCap, but has lost about $2 trillion this year as central banks tightened credit and a series of high-profile corporate failures hit. It was last at $865 billion on December 5.

The spillover from FTX’s collapse has boosted Goldman’s trading volume, McDermott said, as investors sought to trade with regulated and well-capitalized counterparties.

“What has increased is the number of financial institutions that want to do business with us,” he said. “I suspect several of them have traded with FTX, but I can’t say with cast iron certainty.”

Goldman also sees recruiting opportunities when crypto and tech companies shed employees, McDermott said, although the bank is happy with the size of its team for now.

Others are also seeing the crypto meltdown as a chance to build their businesses.

Britannia Financial Group is building its cryptocurrency-related services, CEO Mark Bruce told Reuters.

The London-based company aims to serve clients who are eager to diversify into digital currencies but have never done so before, Bruce said. It will also cater to investors who are familiar with the assets but have become nervous about storing funds on crypto exchanges since FTX’s collapse.

Britannia is applying for more licenses to offer crypto services, such as making deals for wealthy individuals, he said

“We’ve seen more customer interest since the demise of FTX,” he said. “Clients have lost confidence in some of the younger businesses in the sector that exclusively deal in crypto, and are looking for more trusted counterparties.”

Reporting by Iain Withers and Lawrence White, editing by Lananh Nguyen and Alexander Smith

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