Gate.io Blog Goldman Sachs Makes First OTC Crypto Trade

Goldman Sachs Makes First OTC Crypto Trade

29 July 14:30

[TL; DR]

Goldman Sachs is a multinational investment bank headquartered in New York City.

Mike Novogratz founded Galaxy Digital Holding to provide technology solutions and financial services cutting across various digital assets.

Goldman Sachs and Galaxy Digital Holdings have a long-standing and cordial relationship.

On the 21st of March, 2022, Goldman Sachs unveiled the first over-the-counter (OTC) crypto transaction.

This success was a collaboration between Goldman Sach and Galaxy Digital Holdings.

The first OTC crypto trade was in a Bitcoin non-deliverable option (NDO) traded by Galaxy Digital Holdings.

Over the years, Galaxy Digital holding has served as a Goldman Sachs liquidity provider and conducted digital assets exchanges and monetary transactions on its behalf.

The over-the-counter trade is made chiefly between two parties in a private arrangement. It involves negotiation, after which the parties will agree on the price and the modalities for the exchange.

The no-deliverable option conducted by Goldman Sachs and Galaxy Digital Holdings is tied to Bitcoin’s price value, and the payout will be in cash.

Keywords: Goldman Sachs, Crypto, transaction, trade, exchange, OTC, over-the-counter, Galaxy Digital, non-deliverable option (NDO).

[Full Article]

You would recall that traditional financial institutions like JP Morgan, Wells Fargo, and Goldman Sach are breaking boundaries in the cryptocurrency ecosystem. Through a partnership with other like-minded companies, they are becoming stakeholders in crypto.

Recently, the adoption of cryptocurrency took a giant step. Goldman Sach, one of the leading investment banks in the United States, made the first over-the-counter crypto (OTC) crypto trade.

In this article, we shall analyze this giant leap by Goldman Sach in partnership with Galaxy digital.

Let's begin!

Brief Details About Goldman Sach And Galaxy Digital

Image: Genesis Block

Goldman Sach is a multinational investment bank headquartered in New York City. The financial service provided was founded in 1869 by Marcus Goldman and Samuel Sachs.

Goldman is a Wall street giant with products and services that includes asset management, commercial banking, investment banking, mutual funds, prime brokerage, etc. The subsidiaries include Marcus by Goldman Sachs, Personal Financial Management, etc. Its recent foray into the cryptocurrency ecosystem has made it a favorite partner with Galaxy Digital Holdings.

Galaxy Digital Holding is a listed technology company built by Mike Novogratz, a former Goldman partner. Galaxy provides institutional investors and individuals with various financial services that cut across digital assets. Galaxy provides trading, investment banking, asset management, mining, and principal investments.

Since January 2018, Galaxy Digital Holdings has provided digital assets and blockchain-based solutions to institutions, startups, and individuals looking forward to breaking into the decentralized ecosystem. Galaxy’s subsidiaries include Blue Fire Capital LLC, DrawBridge Lending LLC, etc.

Goldman Sachs First Over-The-Counter Crypto Trade

Image: Bloomberg.com

On the 21st of March, 2022, Goldman Sachs went a notch higher in the cryptocurrency ecosystem by conducting the first Over-the-counter (OTC) crypto transaction. This giant leap makes Goldman Sachs the first central US bank to achieve such a feat.

In actualizing the OTC crypto trade, Goldman Sachs partnered with Galaxy Digital. Damien Vanderwilt, the co-president and head of global markets at Galaxy Digital, said, “ We are pleased to continue to strengthen our relationship with Goldman and expect the trade to open the door for other banks considering over-the-trade (OTC) as a conduit for digital trading assets.”

The first OTC transaction was in a Bitcoin non-deliverable option (NDO) form and was traded with Galaxy Digital Holdings, the global provider of blockchain and crypto. In a public release by Galaxy Digital, Damien Vanderwilt said, “Goldman’s continuing trust in us is a testament to Galaxy’s expertise and ability to meet the evolving demands by institutions as cryptocurrency solidifies itself as the fifth asset class.”

Even though the transaction was publicly conducted, the details and volume of the trade are unknown to the public. The press release only stated that it was a non-deliverable option kind of OTC with no information on the amount that was transacted.

Knowing that Goldman Sach and Galaxy Digital have a long-standing relationship is essential. Over the years, Goldman Sach has used Galaxy Digital Holdings as its liquidity provider, digital assets exchanges, and monetary transactions with financial banks.

For instance, in June 2021, Goldman prompted Galaxy to launch its Bitcoin futures trading product for the Chicago Mercantile Exchange (CME) Group, and shortly after, Galaxy responded with the launch. Similarly, Goldman used the Galaxy’s Ethereum fund to offer its investors Ethereum (ETH) exposure, and these investors widely adopted the initiative.

Having identified the few details made available to the public about the first Over-the-counter trade, it is expedient to explain what an over-the-counter trade entails.

What Is An Over The Counter Trade/ Transaction

Image: Medium

Every financial market operates via exchange or over-the-counter (OTC). In an exchange arrangement, trades occur in a formal setting like the stock exchange or crypto platforms. Traders will post their asks, while buyers will post their bids. When an offer and ask match, the exchange occurs.

However, in an over-the-counter transaction, the trade between the two parties (buyer and seller) is made privately. One party will act as the “desk.” After thorough negotiation, the two parties will agree on a price and work out the modalities for exchanging the assets.

In Over counter trades, most transactions are conducted by large institutional investors or prominent individuals. They are called “whales” because the enormous transactions must be completed without slippage.

The non-deliverable Bitcoin option is a derivative tied to Bitcoin s price value that pays out in cash. Crypto investors and traders use the non-deliverable options to hedge risks, boost investment yields and negotiate over-the-counter trades (privately).

Conclusion

The first OTC crypto trade is undoubtedly a welcome development in the cryptocurrency ecosystem. The feat achieved by Goldman Sach and Galaxy Holdings will pave a new way for direct customizable trading in crypto for investors.

Experts are, however, concerned about Bitcoin's non-deliverable trading option. They opined that the trading is done as a cash-settled option and may offset Bitcoin's supposed hedge against inflation. Should this occur, will it not affect the investors and their investments? The larger question is whether Bitcoin is a viable hedge against inflation.

Author: Valentine. A, Gate.io Researcher

This article represents only the researcher's views and does not constitute investment suggestions.

Gate.io reserves all rights to this article. Reposting of the article will be permitted, provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.

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