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Goldman Sachs ramps up trading in partnership with Mike Novogratz’ Galaxy Digital

Goldman Sachs’ efforts to help hedge funds and other large institutional clients bet on bitcoin have taken it a step further.

The bank has started trading bitcoin futures with Galaxy Digital, the crypto merchant bank founded by Mike Novogratz, CNBC has learned.

According to the Galaxy co-president, Goldman has used a digital asset firm as a counterparty for the first time since the investment bank set up its cryptocurrency desk last month, representing it. Damien Vanderwilt.

The move by major global investment bank, Goldman, could resonate on Wall Street and beyond as banks face pressure from customers who want to be exposed to bitcoin. Vanderwilt, former Goldman partner, said that by being the first major US bank to introduce cryptocurrency trading, Goldman is essentially giving other banks cover to do the same. Joined Galaxy last year.

“There’s a whole dynamic with the major banks that I’ve seen over and over again: safety in numbers,” Vanderwilt said in an interview this week. “Once one bank does this, other banks will have [fear of missing out] And they’ll be on-board because their customers are asking for it.”

Galaxy was about to announce on Friday that it would serve as Goldman’s “liquidity provider” on CME Group bitcoin futures — Wall Street parlance for a company that provides quotes for buy and sell orders. Last month, in a memo first reported by CNBC, Goldman said it would be signing on “new liquidity providers that will help us expand our offerings.”

“Our goal is to provide our clients with the best execution pricing and secure access to the assets they wish to trade,” Max Minton, Head of Digital Assets for the Asia-Pacific region at Goldman, said in a statement. “In 2021, this now includes crypto, and we are pleased to have a partner with a wide range of liquidity spaces and differentiated derivatives capabilities spanning the cryptocurrency ecosystem.”

According to Vanderwilt, Goldman is leaning on Galaxy for access to the crypto world because the highly regulated banking industry cannot handle bitcoin directly.

But nothing stops banks from tackling financial bets tied to the price of the underlying coins, and that’s where Wall Street begins its crypto journey. There are parallels in the commodities sector, in which banks trade in exposure to hogs or corn without owning physical assets, he said.

Galaxy – whose management rank is stock With ex-Goldman executives familiar with running regulated businesses – positions themselves as a bridge between financial companies and crypto realms. The firm, whose shares are listed on the Toronto Stock Exchange, is likely to offer shares in the US this year.

It is a step toward the vision that Vanderwilt and other former Goldman executives have for developing bitcoin’s market infrastructure. As more banks allow customers, including hedge funds, pensions, family offices and sovereign wealth funds, to trade bitcoin, the depth and breadth of the market improves, which should ultimately reduce bitcoin’s well-known volatility, he said. .

“You are pushing market participants north of 90% retail, a large proportion of whom have access to ridiculous amounts of leverage in an institutional community that has fair, tried-and-tested rules and regulations regarding leverage, assets. -Liability mismatch and risk,” Vanderwilt said. “The more activity there is in the institutional community, the less volatility there will be.”

Banks will be able to offer customers ways to bet on bitcoin using derivatives, taking a page from the world of established finance, he said. This includes CME bitcoin futures and arbitrage bets relating to the price difference between bitcoin, relative value trades between bitcoin and ethereum, and the creation of bitcoin structured notes.

Goldman’s move into cryptocurrency trading comes despite continued skepticism towards bitcoin from other parts of the firm. The most important thing is that the bank chief investment officer Bitcoin for money management is a . is called bubble Which is not suitable for investors.

But if enough business customers ask for the product, investment banks are bound to provide it, a dynamic that Vanderwilt has seen in other nascent markets around the world during his two decades at Goldman.

“If the phone rings long enough and customers are trying to get exposure, you eventually figure out how to do it safely for them, understanding that your role in the world is to safely take intermediate exposure.” not to act as a trustee,” he said. .

The milestone brings Vanderwilt full circle with his former life. In 2017, as a senior Goldman trading executive, he was tasked with helping start Bank’s first attempt To trade bitcoin futures. Later that plan was shelved. Now he is helping accomplish this from his position in the Galaxy.

“There’s a lot of irony, I smile a lot about it,” Vanderwilt said. “But I’m really happy, it’s a happy full circle.”

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