Goldman Sachs starts trading Ethereum derivatives

abdelaziz Fathi

Goldman Sachs Group Inc. offered its first ever derivatives product linked to ether (ETH), in a significant step for a major bank that accelerates Wall Street’s embrace of cryptocurrencies.

The bank is also planning to offer over-the-counter Ether options trading as it has seen growing interest from clients in the second-largest digital currency, it said in a statement. The move comes nearly 16 months after the investment bank traded its first over-the-counter Bitcoin options.

Citing Marex Financial as the counterparty in this transaction, the Wall Street megabank executed its first trade of ethereum (ETH) non-deliverable forwards. The derivative contract pays out in cash based on the price of ETH, which gives institutional investors exposure without having to hold the underlying cryptocurrency.

In addition, users benefit from improved counterparty risk management and increased capital efficiency, with liquidity and access restricted to end users, which increases reliability.

NDFs comprise a small portion of overall crypto turnover but the product has experienced impressive growth in recent years as it provides a way to trade spot in markets where assets are not deliverable. NDFs are distinct from other products because they do not have central exchange or delivery. Rather, the trades are cash settled based on the difference between the exchange rate at the time of the trade and the exchange rate at maturity.

In March 2021, Goldman reopened its crypto trading desk and started offering Bitcoin futures contracts. The bank had announced similar plans back in 2018 before ditching the idea of a trading desk dedicated to crypto assets, citing regulatory uncertainty.

Having worked out security issues such as how it would custody the assets, the New York-based bank now uses its own money to trade with clients in a variety of non-deliverable forwards linked to the price of Bitcoin.

For this purpose, Goldman Sachs assembled a team in New York to operate in making markets in crypto assets as much as they do for currency or stocks instruments.

Goldman Sachs has been clearing CBOE and CME Bitcoin futures contracts for nearly four years now and is providing clients liquidity for those futures. As for physical bitcoin, its top executive repeatedly said the bank appears unlikely to fully support the underlying cryptos until it has the backing of the US regulators.

David Solomon, who has been the Chief Executive Officer of the investment bank since 2018, said they are exploring the potential of tokenization and stablecoins as part of its efforts to modernize the legacy payment systems.

Solomon added that he might consider launching a cryptocurrency after JPMorgan Chase has become the first US bank to launch its own digital token. Quite apart from the stabelcoins, the next stage of exploration for Goldman Sachs is asset tokenization and frictionless payments .

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