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Goldman Sachs, a leading financial institution, predicts a significant increase in transaction volumes of blockchain-based assets in the next one to two years, according to Mathew McDermott, the bank's global head of digital assets. McDermott highlighted client interest in cryptocurrency derivatives trading, particularly as expectations grow over the potential approval of a spot bitcoin ETF by U.S. regulators.
Bitcoin experienced a significant increase of over 50% this quarter, attracting the attention of institutional clients such as hedge funds and asset managers. Despite this, McDermott's focus extends beyond cryptocurrencies, as he sees a "huge appetite" for digital assets that has expanded significantly in the past year. He is particularly interested in the development of blockchain-based tokens that can represent traditional assets such as bonds.
According to McDermott, the use of blockchain technology in financial markets can lead to operational improvements and settlement efficiency. McDermott suggests that blockchain could enable faster and more precise transfers of collateral and liquidity between parties. However, despite these potential benefits, large-scale integration of blockchain into financial market infrastructures will require a significant technological overhaul.
The Australian stock exchange, which has been working to integrate blockchain into its software platform for seven years, recently halted the project and announced that the upgrade would no longer use blockchain technology. Additionally, while there have been pilot projects to issue blockchain-based bonds, these have not yet led to routine issuance or the establishment of a liquid secondary market.
McDermott predicts a significant increase in on-chain commerce over the next few years, predicting that these marketplaces will reach scale within three to five years. However, he also believes that a complete transition of financial markets to blockchain is still a distant possibility.
A Goldman Sachs survey conducted in September found that 16% of respondents expected more than 10% of the financial market to be tokenized in the next three to five years. Goldman Sachs currently operates a desk trading cryptocurrency derivatives for institutional clients as part of its FX division, but not underlying assets. While McDermott does not expect the approval of the ETF to cause a sudden increase in liquidity and price, he noted that interest in cryptocurrency derivatives has increased as the market has reacted positively to the possibility of a bitcoin ETF. However, the possibility of trading a familiar product that can be scaled is seen as a positive development for attracting new institutional investors to the asset class.
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