Goldman Sachs Hunting For Bargain Crypto Firms after FTX Debacle

Mathew McDermott, Goldman's head of digital assets, recently commented that, FTX's implosion has amplified the need for trustworthy, regulated cryptocurrency players, and big banks see an opportunity to pick up distressed businesses. 

This opportunity has led to decision at Goldman Sachs to spend tens of millions of dollars to buy or invest in crypto companies, after the collapse of the FTX exchange hit crypto startup valuations and lowered investor interest.

"We do see some really interesting opportunities, priced much more sensibly," McDermott said in an interview. He Continued to state, "It's definitely set the market back in terms of sentiment, there's absolutely no doubt of that. FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform."

According to data site CoinMarketCap, the global cryptocurrency market had peaked in 2021, reaching around $2.9 Trillion. Since then, the crypto market has shed about $2 trillion this year as central banks tightened credit and a string of high-profile corporate failures hit. Currently, it stands circa $865 billion as for Dec 5th, 2022. As a distressed market, still having an addressable market close to a trillion, other firms also see an opportunity to capture market share. 

Financial institutions like BNY Mellon and Nasdaq are now providing crypto related services. Binance, an early investor in FTX and a competitor, has suggested buying banks to integrated traditional and non-traditional financial offering for customers. Both Visa and Mastercard have either made investments or crafted partnerships to support and provide crypto related offerings.

There still remain some skeptics, who are not fully onboard with crypto:

"I don't think it's a fad or going away, but I can't put an intrinsic value on it," Morgan Stanley CEO James Gorman said at the Reuters NEXT conference on Dec. 1.

HSBC CEO Noel Quinn, meanwhile, told a banking conference in London last week he has no plans to expand into crypto trading or investing for retail customers.

Even the CEO of Goldman has mixed feelings, David Solomon told CNBC, he views cryptocurrencies as "highly speculative", but he also sees potential in the underlying technology as its infrastructure becomes more formalized.

Goldman is doing due diligence on a number of different crypto firms, McDermott has suggested, but did not provide details. His team has grow to more than 70 people, including a seven-strong crypto options and derivatives trading desk. The firm is also building its own private distributed ledger technology, McDermott said.

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Is Binance CEO Taking Elon Musk Approach to Buying FTX

Is Binance CEO Taking Elon Musk Approach to Buying FTX

If you don't like them - Buy Them; Is this the new moto of the tech billionaires? Changpeng Zhao "CZ", CEO of Binance and Sam Bankman-Fried (SBF) CEO of FTX have been feuding on social media for a few moths now. The fued reached a tipping point when according to CZ, Sam crossed the line by lobbying against Binance to US regulators. 

“We gave support before, but we won’t pretend to make love after divorce. We are not against anyone. But we won’t support people who lobby against other industry players behind their backs,” CZ wrote on Twitter, in an apparent reference to recent calls for more crypto regulation by SBF, who is also one of the biggest campaign donors in U.S. politics. 

Brief Background on Binance on FTX:

Binance came on the seen in 2017 and quickly became the largest and possibly the most influential player in the crypto exchange industry, valued at over $300 Billion. When FTX came around, Biance was an earl investor in the firm. FTX grew exponetially and whilst both CZ and SBF built their empries outside the reach of regulator, SBF became heavily engaged with regulators and U.S. politics. 

What Triggered the FTX Acquisition? 

Recently, SBF's other venture company Alameda Research had it's balance sheet leaked and showed that it held large positions in FTX. Accordin to CZ, this was a red flag on the financial health of FTX and made the decision to liquidate its FTT holdings, the native token of FTX exchang, which it had received as part of an exit from the firm last year. The liquidation worth about $580 million in FTT, led to spooked investors and led FTT to plummet. FTX did not have the liquidity to cover the call for $580 Million, which led to SBF, reaching out the Binance for help.

“This afternoon, FTX asked for our help,” tweeted Zhao “CZ” Changpeng on Tuesday. “There is a significant liquidity crunch. To protect users, we signed a non-binding [letter of intent] intending to fully acquire http://FTX.com and help cover the liquidity crunch.”. But that's not it, CZ continued that, “There is a lot to cover and will take some time,”. He continued, “This is a highly dynamic situation, and … Binance has the discretion to pull out from the deal at any time.”

According to different industry analysts:

“Binance is the immediate trigger, but FTX should resolve its relationship with Alameda. FTX cannot carry on its existing ownership structure with Alameda. FTX needs to completely ring-fence itself and potentially shut down the Alameda prop trading business. If Alameda’s trading operations impact FTX’s customer confidence (perception of Alameda trading against users on FTX and Alameda’s state of finances), then there is more downside to running Alameda than otherwise,” a Bernstein analyst wrote in the note.

“I’m actually shocked by this,” an industry executive told CNN Business. “FTX failing … would be kind of like a Lehman Brothers event for the space. But if they have been successfully bailed out, then that would probably head things off at the pass.”

What Happens Next?

The firms haven’t disclosed the financial terms of the deal, but it's not bad news for FTX investors as the firm was valued at $32 billion in a Series C financing round earlier this year. In the mean time, SBF has stated that FTX is working on clearing the withdrawal backlog, “This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. — we apologize for that,”.

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