Goldman Sachs announces milestone with the first over-the-counter crypto trade with Galaxy Digital

March 22, 2022: -Goldman Sachs is pushing further into the nascent market for derivatives tied to digital assets.

The firm is announces that it is the first central U.S. bank to trade an over-the-counter crypto transaction, CNBC has learned. According to the two firms, Goldman sold a bitcoin-linked instrument called a non-deliverable option with crypto merchant bank Galaxy Digital.

The move is seen as a significant step in developing crypto markets for institutional investors due to the nature of OTC trades. Compared to the exchange-based CME Group bitcoin products that Goldman began trading in the previous year, the bank takes on greater risk by acting as a principal in the transactions, according to the firms.

That Goldman, a top player in global markets for traditional assets, is involved is a the increased maturity of the asset class for institutional players such as hedge funds, according to Galaxy co-president Damien Vanderwilt.

“This trade represents the first step that banks have taken to offer direct, customizable exposures to the crypto market on behalf of their clients,” Vanderwilt said in an interview.

The options trades are “much more systematically relevant to markets compared to cleared futures or other exchange-based products,” Vanderwilt said. “At a high-level, that’s due to the implications of the risk banks are taking on; they are implying their trust in crypto’s maturity to date.”

The firms said that hedge funds seek derivative exposure to bitcoin, either to make wagers on its price without directly owning it or to hedge existing exposure. The market for these instruments is mainly controlled by crypto-native firms, which include Galaxy, Genesis, and GSR Markets.

“We are pleased to have executed our first cash-settled cryptocurrency options trade with Galaxy,” Max Minton, Goldman’s Asia Pacific head of digital assets, said. “This is an important development in our digital assets capabilities and for the broader evolution of the asset class.”

In December, the bank has seen high demand for options tied to digital assets, Goldman’s global head of crypto trading, Andrei Kazantsev, said.

“The next big step that we envision is the development of options markets,” he said.