Major milestone for institutional adoption: Goldman Sachs conducts first OTC crypto trade

Goldman Sachs has conducted its first over-the-counter cryptocurrency transaction. The banking giant traded a Bitcoin non-deliverable option (NDO) with Galaxy Digital, becoming the first major bank in the United States to trade cryptocurrencies over the counter. It also marks an important milestone in the further adoption of cryptocurrencies by large institutions such as Goldman Sachs.

Goldman Sachs relied on Galaxy to enter the crypto world because the highly regulated banking industry cannot handle bitcoin directly, and the bank's first CME Group Inc. bitcoin futures trade last year was completed through Galaxy Digital.

The latest move is seen as a notable step for institutional investors in the crypto market, in part because of the over-the-counter nature of the transaction, which puts Goldman Sachs at greater risk as the principal than it did in CME Group Inc.’s bitcoin futures product traded last year.

Damien Vanderwilt, co-president of Galaxy and a former Goldman Sachs partner, said Goldman Sachs is a top player in the global traditional asset markets, which shows the growing maturity of the asset class among institutional players such as hedge funds.

“This deal represents the first step for banks to provide direct, customizable exposure to crypto markets on behalf of their clients,” Vanderwilt told CNBC.

Vanderwilt explained that options trading is “more systemically relevant to the market” than cleared futures or other exchange-based products. “At a high level, it’s because banks are taking the risk; they are signaling trust in the maturity of cryptocurrencies to date.”

As more banks allow clients including hedge funds, pension funds, family offices and sovereign wealth funds to trade Bitcoin, the depth and breadth of the crypto market are gradually expanding.

While Bitcoin and the cryptocurrency market are still consolidating slightly on recent price action, institutions have not completely left or abandoned the market and are still accumulating more funds on their balance sheets.

Hedge funds have been seeking derivatives exposure to bitcoin, either to bet on its price without directly owning it or to hedge existing bitcoin exposure. The market for these instruments is largely controlled by crypto-native companies including Galaxy, Genesis and GSR Markets.

Max Minton, head of digital assets for Asia Pacific at Goldman Sachs, said in the statement: "We are delighted to have conducted our first cash-settled cryptocurrency options transaction with Galaxy... This is an important step in the development of our digital asset capabilities and the asset class more broadly."

Damien Vanderwilt's experience and connections at Goldman Sachs have brought a large number of clients to Galaxy. Galaxy's trading platform provides liquidity for more than 100 digital assets, and in the third quarter of last year, it worked with more than 690 institutional counterparties and added 43 new client relationships. Bitpush previously reported that Goldman Sachs is offering the Galaxy Institutional Ethereum Fund, an Ethereum fund issued by Galaxy Digital, to interested clients, and the banking giant collects part of the referral fee.