In a recent interview, Mathew McDermott, the Head of Digital Assets at Goldman Sachs, expressed his optimism about the potential approval of spot Bitcoin and Ethereum ETFs (Exchange Traded Funds). McDermott believes that these ETFs will not only broaden and deepen the liquidity in the crypto market but also pave the way for increased institutional interest in cryptocurrencies.
Traditional Finance Embraces Digital Assets
McDermott highlights a significant trend in the digital assets space over the past year – the increasing involvement of traditional financial institutions. He notes that these institutions have recognized the potential of digital assets to create efficiencies, reduce risks, and positively impact business models. This growing acceptance has been facilitated by greater regulatory clarity worldwide.
The Head of Digital Assets at Goldman Sachs emphasizes that the industry is now at a stage where it’s widely acknowledged that blockchain technology works. This realization has led to a focus on scaling and commercial value. McDermott predicts that in the coming year, marketplaces for digital assets will develop, particularly in the context of investors on the buy side.
Tokenization and Secondary Liquidity
In 2024, McDermott anticipates significant growth in adoption from the buy side. He also expects the emergence of secondary liquidity on-chain to play a crucial role in this development. Tokenization, a topic of extensive discussion, will likely lead to more scale adoption, particularly among investors. This secondary liquidity will enable greater flexibility in trading digital assets.
Moreover, McDermott foresees that increased adoption of blockchain technology will enhance “collateral mobility” by addressing long-standing inefficiencies in the financial plumbing of the market. Outdated systems, custody fragmentation, settlement synchronization issues, and inefficient capital and liquidity utilization will be alleviated as institutions embrace the technology.
Spot ETF Approval and Institutional Involvement
One of the most anticipated developments in the crypto space is the approval of spot ETFs for Bitcoin and Ethereum by the Securities and Exchange Commission (SEC), expected early in 2024. According to McDermott, this approval will have far-reaching consequences. It will not only broaden and deepen liquidity but also make institutional products accessible for trading by institutions that do not need to directly handle the underlying assets.
McDermott sees this as a significant step towards institutionalizing the crypto market. It opens up opportunities for pensions, insurers, and other institutional players to enter the space. While he doesn’t expect an immediate and dramatic change, he believes that over the course of the year, liquidity will expand, attracting more participants looking to trade these ETFs.
The year ahead is likely to witness significant growth in adoption from the buy side. As liquidity expands and institutional interest grows, the crypto market’s transformation into a more institutionalized and accessible space is set to continue throughout the year.
In conclusion, the digital assets space is poised for further growth and maturation in 2024, driven by the involvement of traditional financial institutions, regulatory clarity, and the potential approval of spot Bitcoin and Ethereum ETFs. As institutional interest in cryptocurrencies continues to rise, the crypto market’s liquidity and accessibility are set to undergo transformative changes.