Goldman Sachs’ every move, every word, and every potential crypto transaction gets put under a microscope. The reason is simple – any crypto adoption, products or architecture, that Goldman pursues will quickly be pursued by all of its direct competitors and every likeminded banking institution downstream.
That is why we thought it a serious revelation when we found out that Goldman has been discussing and pursuing a way to offer Ethereum investments to its clients.
Goldman has been actively exploring the creation of a client offering that is based on Ethereum futures, not all that different from the Bitcoin products that they are offering clients at the moment. This would represent the penultimate global investment bank staying significantly ahead of its competitors in the race to gather client crypto assets.
The question we’ve raised and have yet to get clarity on is whether or not the Ethereum product would be an NDF – which Goldman has offered before with respect to Bitcoin.
**A reminder regarding what an NDF is and how it is used at a firm like Goldman Sachs: a non-deliverable forward (NDF) is an outright forward or futures contract in which counterparties settle the difference between the contracted NDF price or rate and the prevailing spot price or rate on an agreed notional amount. It is used in various markets such as foreign exchange and commodities.
We’ve spoken to a total of six sources on this topic but will limit our description of those discussions to only three of those sources. Two sources asked us to not use their quotes and another had other circumstances disallowing the release of any information. Still, the number of conversations we’ve had around this topic has been extensive.
Our first source described the process as such:
“Goldman has been known to push the envelope and develop products that benefit both the firm and their clients. In this case that is clear. Very clear. The clamoring for crypto assets amongst the UHNW class of investors is loud and continual, causing Goldman to respond. They’ve been quietly assuring subsets of clients that an Ethereum NDF is on tap no later than early in 2019. The purpose of announcing timing to certain clients is to cause them to ‘hold their powder’ with respect to crypto asset allocations so as to make sure they come to Goldman. The team working crypto at Goldman has been charged with controlling as much of their client based crypto dollars as possible – with an emphasis on custody and regulatory safety. That is the message.”
Our second source gave us this small tidbit, backing up the above:
“In terms of what products could possibly be on tap – I wouldn’t call it products, as in plural. Your focus should be on Ethereum. It is the only other cryptocurrency that has been dubbed a commodity, thus making it a natural choice for us (Goldman). And the focus is an NDF designation. That covers the bases from a regulatory standpoint and gives clients that access they want. Expect an early 2019 release.”
A final ‘quotable’ source from inside Goldman said the following:
“Ethereum NDF will happen. Not a question of if, but rather when at this point. Clients believe that Bitcoin and Ethereum, on balance, are the investable digital assets and have been asking about solutions since late 2017. Obvious reasons why that would be the case. The noise around Ethereum has only increased as the price has pushed lower. Clients look at these assets like internet names after the dot-com crash. We are simply filling a need based on significant client requests. I will add, I doubt that we include any other cryptos for a significant amount of time once Ethereum is added. Hard to make that case that any other asset holds intrinsic value.”
Intrinsic value. Client requests. Regulatory designations. All terms that were cited again and again and again in these discussions.
Goldman Sachs has proven to be very nimble in the space and causing competitors to play catch up in ways that we didn’t expect. Citigroup, Morgan Stanley, Bank of America, and others and working overtime to get to where Goldman already is.
Adding an Ethereum NDF will only widen the gap, should Goldman find a way to release it this year. Nobody we spoke to gave us 2018 guidance, but should it happen that quickly it would strategically put Goldman in the ‘way out front’ lead in the UHNW crypto crowd.
A reminder of what Goldman has been doing with crypto assets leading up to even this piece of information – they’ve been hard at it for better than six months.
“Via Bloomberg: “The firm is considering a plan to offer custody for crypto funds, according to people with knowledge of the matter. That means the bank would hold the newfangled securities on behalf of the funds, reducing the risk for clients seeking to guard against the threat of losing their investments to rogue attacks.”
“The deliberations are ongoing and no timeline has been set for when the firm will roll out the services, the people said, asking not to be identified because the information isn’t public.”
“A formal offering from an institution like Goldman Sachs would provide a credible backing for crypto funds and could pave the way for more investors to bet on the asset class. Having a custody operation in place could also lead to other ventures, including prime-brokerage services, the people said.”
And, of course, Goldman just announced a small investment (yes, $15MM is a ‘small’ investment for Goldman Sachs) in BitGo, while also engaging Bakkt and others in the custody space for client crypto assets.
Goldman isn’t slowing down in its pursuit of a crypto strategy. If anything, they are speeding up and hoping to stay far ahead of their rivals.