America’s top investment bank – Goldman Sachs – and one of the largest exchanges of crypto derivatives – FTX – reportedly engaged in discussions to collaborate to offer new services to customers within the United States while eyeing the potential public listing of the firm founded by Sam Bankman-Fried.
According to a report from the Financial Times, the Chief Executive Officers of the two companies held a closed-door meeting recently in which they discussed multiple topics including FTX’s compliance with the standards of the US Commodity Futures Trading Commission (CFTC).
FTX recently asked the CFTC to amend a rule that makes the company rely on an intermediary to collateralize all of its margined derivatives trades instead of allowing the company to do so independently. According to the company, this would help FTX in mitigating risks more effectively.
The Financial Times report also stated that the two executives had a dialogue about the possibility of taking FTX public. Goldman Sachs was the firm that took public Coinbase back in April 2021 at a valuation of around $ 86 billion.
FTX recently raised as much as $ 400 million during its Series C funding round in January at a valuation of approximately $ 32 billion. This makes the company one of the most valuable in the crypto space.
Goldman Sachs has been getting increasingly interested in participating in the up-and-coming crypto market. Last month, the bank started to actively trade over-the-counter (OTC) crypto derivatives and may be getting ready to offer sophisticated crypto investment services to customers according to a recent interview with the head of its private wealth management division.
A collaboration between Goldman and FTX would mark a strong shift in Wall Street’s long-standing view of cryptocurrencies.
During a call with investors in 2020, Goldman stated: “We believe that a security whose appreciation is primarily dependent on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients”.
Meanwhile, JP Morgan’s top boss, Jamie Dimon, had deemed Bitcoin (BTC) a “fraud” and a “worthless” asset on multiple occasions.
On April 14, one of Europe’s largest banks – Commerzbank – reportedly applied for a license to offer crypto-related services in Germany. The bank serves over 18 million customers and this makes its increasing interest in the space an event that is hard to ignore.
Experts in the crypto field agree that more banks embracing cryptocurrencies is positive for the development of the ecosystem as more investors will be exposed to its benefits while regulations should rapidly evolve to protect the community from fraudulent schemes as the involvement of these institutions will put pressure on regulators to take action to keep systemic risks at bay.
What are crypto derivatives and how do they work?
A derivative is a financial contract that gives the holder some type of claim over the underlying asset. In the case of options, holders have the right – not the obligation – to buy (call) or sell (put) the underlying asset at a pre-defined price once the instrument expires – in some cases, before that.
Meanwhile, futures are a different type of derivative that give the holders the obligation to take delivery of a certain asset they have bought at a pre-defined price once the contract expires. In some cases, the contract may be settled in cash.
Crypto traders use these derivatives to speculate on digital assets. For example, if they believe the price of the asset will rise, they can buy call options and wait until the price increases to sell the contract at a profit.
Companies like FTX offer these derivatives and provide liquidity to the market by acting as a market-maker. Companies like Goldman have a vast experience in this particular field as they play a similar role in traditional markets such as equities and bonds.
Crypto assets are highly volatile unregulated assets. Your capital is at risk.
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