© Reuters. FILE PHOTO: People walking at the Goldman Sachs global headquarters in Manhattan, New York, U.S., November 15, 2021. REUTERS/Andrew Kelly/File Photo
By Elizabeth Howcroft
LONDON (Reuters) – Goldman Sachs expects a “significant increase” in trading volumes for blockchain-based assets in the next one to two years, the bank's global head of digital assets told Reuters.
The Wall Street heavyweight has also seen growing client interest in crypto derivatives trading, Mathew McDermott said, as markets expect the US securities regulator to soon approve an application for an ETF (fund listed on the stock market) of spot bitcoin.
has risen more than 50% this quarter and institutional clients, including hedge funds and asset managers, are weighing the opportunities.
But McDermott said he remains focused on developing digital assets beyond cryptocurrencies, including issuing blockchain-based tokens that represent traditional assets such as bonds. He said there was a “huge appetite” for digital assets, which has “grown significantly” over the past 12 months.
Banks have long expressed interest in using blockchain technology to trade assets other than cryptocurrencies, but doing so on a large scale would require a major overhaul of the technological infrastructure that underpins financial markets.
McDermott said the use of blockchain could drive operational and settlement efficiencies and “de-risk” financial markets.
If securities were traded via blockchain, collateral and liquidity could be sent between parties more quickly and accurately, he added.
After spending seven years trying to rebuild its software platform around blockchain, Australia's stock exchange “paused” the project last year and announced in May that the upgrade would no longer involve the technology.
And while there have been several pilot projects to issue blockchain-based versions of, for example, bonds, there is no routine issuance or liquid secondary market.
“Probably in the next year or two we will see a huge significant increase in on-chain quantum trading, probably three to five years to really see these markets at scale,” McDermott said.
Still, he believes that replicating most financial markets exclusively on blockchain is a long way off.
A survey of Goldman Sachs clients, published in September, found that 16% of respondents expect more than 10% of the financial market to be “tokenized” in the next three to five years.
As part of its foreign exchange desk, Goldman runs a team that trades cryptocurrency derivatives, but not the underlying asset, for institutional clients, McDermott said.
“It's all relative, because it's still a very, very, very small market, but definitely as the market gets more excited about the potential of a bitcoin ETF, there's definitely been more interest,” McDermott said.
McDermott said he did not expect the approval of the ETF to cause a “sudden and immediate increase in liquidity and price,” but it could attract new institutional investors to the asset class.
“I think this ability to transact with a product that people are familiar with and that can provide scale is very positive.”
