Goldman Sachs expects “significant growth” in blockchain-based asset trading volumes over the next one to two years, Mathew McDermott, global head of digital assets at Goldman Sachs, told Reuters.
The Wall Street giant said client interest in crypto derivatives trading is increasing, and the market expects U.S. securities regulators to soon approve an application for a Bitcoin spot traded fund (ETF).
With bitcoin up more than 50 percent this quarter, institutional clients including hedge funds and asset managers are weighing the opportunities.
But McDermott said he remains focused on developing digital assets, not just cryptocurrencies but also the issuance of blockchain-based tokens representing traditional assets such as bonds. He said there is "huge demand" for digital assets, which has grown "significantly" over the past 12 months.
Banks have long expressed interest in using blockchain technology to trade assets other than cryptocurrencies, but achieving this on a large scale would require a major overhaul of the technological infrastructure that supports financial markets.
McDermott said the use of blockchain could lead to operational and settlement efficiencies, as well as the “de-risking” of financial markets. If securities were traded on a blockchain, collateral and liquidity could be transferred between parties more quickly and with greater precision, he added.
The Australian Stock Exchange spent seven years trying to rebuild its software platform around blockchain, but “paused” the project last year and announced in May that upgrades would no longer involve the technology.
While there have been various pilot projects, such as issuing blockchain-based versions of bonds, there are no routine issuances or liquid secondary markets.
"Maybe within the next one to two years you'll see a significant increase in on-chain quantum transactions, and it may take three to five years to really see these markets scale," McDermott said.
Still, he believes replicating most financial markets exclusively on blockchain is a long way off.
A Goldman Sachs client survey released in September found that 16% of respondents expected more than 10% of financial markets to be "tokenized" in the next three to five years. As part of its foreign exchange trading desk, Goldman Sachs operates a team that provides cryptocurrency derivatives trading to institutional clients, but does not involve the underlying assets. "It's still relative because it's still a very, very, very small market, but as the market's understanding of the potential of a Bitcoin ETF increases, more transactions are indeed emerging," McDermott said.
McDermott said he doesn't think the approval of an ETF will trigger a "sudden, immediate surge in liquidity and prices," but it could attract new institutional investors to the asset class. "I think it's very positive to actually be able to trade a product that people are familiar with and can provide scale," McDermott said. As of press time, Bitcoin has risen by nearly $500 in the short term, now at $41,753 per coin; Ethereum has risen in the short term, reaching $2,200 per coin, up 1.37% on the day.
