Multinational investment bank Goldman Sachs is now exploring the provision of bilateral crypto options, deepening its involvement with crypto derivatives trading for institutions. They will purportedly allow holders such as Bitcoin miners and hedge funds to either hedge their risks, or boost yields with customizable offerings.
The Crypto Options Market
The bank’s plans were reported by sources familiar with the matter who chose to remain anonymous, according to Bloomberg. Apparently, Goldman is just one of multiple Wall Street Banks that have begun exploring these options.
An ‘option’ is a financial instrument that gives investors the opportunity to purchase or sell a security or cryptocurrency at a predetermined price in the future. ‘Call’ options are those that give holders permission to buy the cryptocurrency, while ‘put’ options give permission to sell.
Every options contract comes with an expiration date by which holders must choose whether to redeem it. However, they effectively let traders/investors benefit from an underlying cryptocurrency’s volatility without being totally exposed to its risks.
The market for these options contracts is available but currently dominated by crypto-native companies. Examples include crypto broker Genesis Global, crypto market maker GSR, and investment manager Galaxy Digital. However, a more traditional platform in the Chicago Mercantile Exchange (CME) will also offer micro Bitcoin and Ethereum options trading by the end of the month.
Large Wall Street Banks have heretofore been held back from entering the crypto spot market due to regulatory uncertainty. Thankfully, President Biden’s executive order signed on Wednesday is designed to organize research and regulatory authority of the industry among various federal bodies. According to SEC Chairman Gary Gensler, the crypto market should steadily move towards regulation in its aftermath.
Regulation has also proven a roadblock for Binance after it was forced to stop its futures and options trading in Australia.
Goldman’s Crypto Involvement
Goldman Sachs has had a lot to say about crypto and has involved itself with the industry in a few ways already. In July, the bank filed for a “DeFi” ETF that would closely track the performance of the decentralized finance space. That said, many of the firms it intended to track were not related to DeFi at all.
In January, a former Goldman CEO told CNBC that crypto is definitely “happening” even if he doesn’t fully understand it yet. However, the company now believes that even if adoption persists, it may not push the prices of crypto assets higher.