The Goldman Sachs Group Inc. (GS) executed its first over-the-counter (OTC) crypto trade through its trading partner Galaxy Digital Holdings Ltd. (GLXY). This is the first such transaction by a major U.S. bank.
The Bitcoin (BTC) trade executed by Goldman is a non-deliverable option (NDO), also known as a cash-settled option. This means that when the option is settled, instead of receiving Bitcoin, the option-holder is given its cash value. Goldman's transaction marks a departure from the company's earlier digital trades for the derivatives marketplace CME Group and indicates its willingness to assume the added risk that comes with an OTC trade. An OTC trade is executed directly between counterparties without using a centralized exchange.
- Goldman executed the first Bitcoin OTC trade, marking further institutional adoption of cryptocurrencies.
- The non-deliverable option, faciliated by Goldman trading partner Galaxy, will settle as cash at maturity.
- Bitcoin has been seen as an inflation hedge; Goldman's first BTC OTC trade comes as inflation is spiking worldwide.
Goldman Sachs' Partnership With Galaxy Digital
Goldman has been using Galaxy as its liquidity provider for cryptocurrencies in the spot market, futures, and digital assets exchanges, and for transactions with fiat banking organizations. In June 2021, Goldman called on Galaxy to launch its Bitcoin futures trading product for the CME Group. Goldman also started offering its investors exposure to the digital currency Ethereum (ETH) through Galaxy's Ethereum Fund. Earlier, in May 2021, Goldman launched its Bitcoin trading desk and started offering Bitcoin non-deliverable forwards, whose price is tied to Bitcoin's.
Galaxy lists over 100 digital assets and facilitates trades in central exchanges as well as in OTC markets.
The Bottom Line
This first OTC crypto execution in the context of climbing inflation raises the question of whether Bitcoin is an effective hedge against inflation. Frequently labelled as "digital gold," Bitcoin's absolute limit of 21 million is meant to offset depreciation of fiat currency. By executing an OTC trade and using Galaxy as the liquidity provider for its crypto options trade, Goldman is making direct customizable trading in crypto possible for investors for the first time. On the other hand, because this trading is done as cash-settled options, it may offset Bitcoin's supposed ability hedge against the depreciation of fiat currency.