Goldman sees clients boomerang in flight to quality as crisis engulfs crypto firms

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Goldman Sachs head of crypto trading says investors are coming back to the bank to carry out crypto trades after being spooked by crises at digital assets firmssuch as FTX.

Andrei Kazantsev told Financial News that traditional hedge fund and asset manager clients had previously flirted with crypto firms, but are now reverting to institutions such as Goldman because of counterparty risk in the digital assets space. He said the process was a flight to quality.

Kazantsev’s comments to FN on 9 November at the London crypto conference Token 2049 camehours beforecrypto giantBinance pulled out of a proposed deal to rescue rival FTX, following a liquidity crisis at the latter.

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FTX has been the subject of what was effectively a bank run, as customers rushed to withdraw funds from the trading platform following reports thatit faced trouble from losses at Alameda, a related trading firm.

As the Sam Bankman-Fried-owned company suffered mass withdrawals, Binance announced that it was to buy the company, pending due diligence. But Binance, the world’s largest crypto exchange, said on 9 November that it is pulling out of the deal.

The events have rocked an industry already beset by trauma this year. Firms such as crypto lender Celsius and broker Voyager Digital have filed for bankruptcy protection in recent months after a crash in prices over the second quarter of 2022.

In the beginning, our hope was to be able to support FTXs customers to provide liquidity, but the issues are beyond our control or ability to help, Binance said in a statement.

The sector losta further $180bn in market capitalizationin recent days, according to CoinMarketCap data. Crypto hedge funds also took a massive blow from the latest market plunge on the FTX news, FN reported on 9 November.

During a panel discussion earlier in the day, Kazantsev told the conference the counterparty risk is starting to be top of mind for traditional hedge funds and asset managers. They want to see names that they are already comfortable with to be the counterparty in the crypto space.

However, it has not scared traditional finance firms away from the sector as a whole, he added.

There is a growing understanding that this is a space where they need to be active, where they need to participate on behalf of their clients. They’re willing to use institutions such as ours to cater to their demands, Kazantsev said.

Goldman Sachs is one of the few major investment banks offering crypto derivatives trading services, and it does not yet offer spot trades on assets such as bitcoin or ether. It has a team of about 50 people in its crypto trading team, plus around 20 engineers.

Nomura is looking to occupy a similar position on digital assets and is building a 50-strong team for its crypto spin-out Laser Digital. The firm is aiming to start trading digital assets early next year as it makes a major push into the sector.

Elsewhere at the Token 2049 conference, industry leaders spoke about how the sector has matured as a result of its tumultuous year. Visitors to the event were greeted by two live alpacas in the entrance hall, while sports cars a yellow Lamborghini, a Bentley and a Rolls-Royce sat outside, carrying the branding of crypto exchange SuperEx.

To contact the author of this story with feedback or news, email Alex Daniel

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