Goldman Sachs is close to announcing that it is the first major U.S. bank to trade an over-the-counter (OTC) crypto instrument, a recent report said. The firm reportedly traded a Bitcoin-linked instrument with crypto bank Galaxy Digital.
An OTC transaction is one that takes place directly over a private broker-dealer network, instead of a centralized exchange. With crypto, it could be a major medium through which firms can introduce more derivative products.
CNBC reported that Goldman’s transaction is an important step in the development of institutional investing in crypto. With OTC trading, Goldman Sachs will be taking on greater risk by being directly involved in the transaction, as opposed to the exchange-based BTC products that Goldman currently offers.
Goldman Sachs no stranger to crypto
Galaxy said the OTC option trade was much more relevant to markets, in comparison to other exchange-linked derivatives currently offered by the digital bank.
If introduced as a product, OTC crypto products will likely be aimed at institutional investors such as investment banks and hedge funds. Galaxy already offers some crypto derivatives, which Goldman Sachs recently began offering to interested clients.
Specifically, Goldman allowed its clients to gain exposure to an Ethereum fund operated by Galaxy. Last year, the crypto bank also began supplying liquidity to Goldman Sachs for its Bitcoin futures trading.
Crypto derivatives are sought by investors looking to gain exposure to the market without directly investing in it. The market for these instruments is led mostly by established crypto firms including Galaxy, Genesis and GSR Markets, CNBC said.
Goldman is now looking at establishing a crypto options market.
Institutional trading a major driver for crypto
Crypto-derivative products are likely to invite more institutional interest in the crypto market- a trend already seen growing since 2020. Recent data suggests that nearly all of Bitcoin’s trading volumes are dominated by large trading houses.
But the influx of institutional interest has also seen crypto markets trade more in line with U.S. stocks, which has dented Bitcoin’s potential as an inflation hedge, or even a gold alternative.