Goldman Sachs Expects Growing Interest in Blockchain-Based Assets

Goldman Sachs is reportedly anticipating a substantial increase in trading volumes of blockchain-based assets in the next one to two years.

There is also growing interest in cryptocurrency derivatives trading among clients, as the market awaits the approval of a spot bitcoin exchange-traded fund (ETF) by the U.S. securities regulator, Mathew McDermott, the investment bank’s global head of digital assets, told Reuters in a report posted Wednesday (Dec. 13).

While bitcoin has experienced a 50% surge this quarter, McDermott said his focus extends beyond cryptocurrency, according to the report. He aims to develop digital assets beyond cryptocurrencies, including blockchain-based tokens that represent traditional assets like bonds.

McDermott said there is a “huge appetite” for digital assets, which has grown significantly over the past year, the report said.

Banks have long been intrigued by the potential of utilizing blockchain technology to trade assets other than cryptocurrencies, per the report. However, implementing this on a large scale would require a major overhaul of the technology infrastructure supporting financial markets.

McDermott believes that using blockchain could bring operational and settlement efficiencies, as well as reduce risks in financial markets, according to the report. Blockchain technology could enable faster and more precise transfer of collateral and liquidity between parties.

Although there have been pilot projects to issue blockchain-based versions of bonds, routine issuance and a liquid secondary market have yet to be established, the report said.

McDermott expects a significant increase in on-chain trading volumes within the next one to two years, with marketplaces at scale taking three to five years to develop, per the report. However, he acknowledged that fully replicating the majority of financial markets exclusively on blockchain is still a distant prospect.

Goldman Sachs found that 16% of the clients it surveyed expect more than 10% of the financial market to be “tokenized” in the next three to five years, according to the report.

McDermott also mentioned that Goldman Sachs operates a team trading cryptocurrency derivatives for institutional clients, although the market remains relatively small, the report said. He believes that the approval of a bitcoin ETF could attract new institutional investors to the asset class.

It was reported in October that the possible approval of the first U.S. spot bitcoin ETFs was driving up the value of the world’s largest cryptocurrency. Crypto proponents say ETFs would lead to greater adoption of digital assets.