Goldman Sachs Opens Over-the-Counter Crypto Options Trading

Goldman Sachs has traded a Bitcoin-linked instrument, called a “non-deliverable option”, with investment firm Galaxy Digital. This over-the-counter (OTC) trade marks the first step taken by a top US bank to expand its services around the crypto sector. Non-deliverable options are settled in cash at the pre-decided date of their maturity. In an OTC setting, two parties directly trade crypto assets for other cryptocurrencies, or for fiat currencies. OTC trading allows large amounts of crypto assets to be bought or sold without any intermediary or glitches.

In an official statement, Galaxy Digital called crypto the fifth asset class while lauding Goldman Sachs for adding more crypto services for institutional investors.

“Goldman's continuing trust in us is a testament to Galaxy's expertise and ability to meet the evolving demands by institutions as crypto solidifies itself as the fifth asset class,” said Damien Vanderwilt, Galaxy Digital Co-President and Head of Global Markets.

Established in 1869, Goldman Sachs is diving deep into the digital assets industry. Last year, it opened trading of Bitcoin products by the CME Group.

“We are pleased to have executed our first cash-settled cryptocurrency options trade with Galaxy. This is an important development in our digital assets capabilities and for the broader evolution of the asset class,” said Max Minton, Asia Pacific head of digital assets for Goldman Sachs.

A non-deliverable option is a right, but not an obligation to buy or sell something on a decided future date.

Rohas Nagpal, the author of Future Money Playbook and Crypto Playbook, explains, “If I give you an option on Bitcoin at Rs. 60,000 for May 1, 2022, this is what it would mean — on May 1, you can choose to buy Bitcoin from me at Rs. 60,000. If BTC price on that day is more than Rs. 60,000, you will exercise the option or else you will let it expire and pay the option writer a premium. Non-deliverable options are settled in cash at maturity. So, if market price on May 1 is Rs. 65,000, you will not get the Bitcoin, but Rs. 5,000 from me.”

According to Vanderwilt, the options trades are “much more systematically relevant to markets compared to cleared futures or other exchange-based products, mainly because at a high level”, because the bank is taking risk and showing trust in crypto's potential to mature at the decided date.

Institutional investors, such as Galaxy Digital usually put their money in large chunks of assets. These big transactions can usually not be possible via crypto exchanges; hence individuals or institutions could approach a ‘desk' to obtain it in an OTC setting.

“For example, if you were to try to buy BTC 500, you would run into a host of issues. If you attempted to buy it all on one exchange, odds are that no one person is selling BTC 500 at any given time — you would have to buy it from multiple sellers,” Connor Dempsey from Coinbase Ventures explained in a blog post.

This OTC trade between Goldman Sachs and Galaxy Digital stirred major buzz on Twitter.

Goldman Sachs had already begun trading Bitcoin futures contracts with Galaxy Digital last year.

However, its new OTC crypto options trading will be riskier for the bank, which is acting as a principal in the transactions, CryptoPotato reported.