Digital asset markets poised to grow in 2024, Goldman Sachs exec says

The digital assets marketplace is positioned to grow and mature further next year as more commercial applications of the blockchain are brought to market and regulation helps facilitate their use in new investment applications, according to a Goldman Sachs executive.

Mathew McDermott, head of digital assets at Goldman Sachs, told FOX Business in an interview that one of the biggest developments in the digital assets space over the last year was the increasing involvement of traditional financial institutions in the space in the last 12 to 18 months.

He explained that this has occurred amid a growing acceptance that digital assets can "create efficiencies, it can de-risk, it can have a lot of very positive impacts in terms of business model and the way that the businesses kind of operate. And that’s been aided by kind of increased regulatory clarity across the globe."

McDermott said that digital assets are at a stage where there is a broader acceptance that the technology works, which has allowed the market to focus on "building out and creating scale," which is "where you really start to see the commercial value proposition come to fruition."

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"When I think about tokenization, which is obviously a topic that’s kind of talked about quite extensively, I think for me next year what we’ll start to see is the development of marketplaces. So where we start to see scale adoption, particularly across the buy side in the context of investors. And that’s because we’ll start to see the emergence of secondary liquidity on chain, and that’s a key enabler. So for me, that’s one of the key developments for next year."

McDermott also said that increased adoption of the technology will enhance "collateral mobility" over the next year by solving problems in the "financial plumbing of the market."

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"When you look at collateral mobility, there’s still a lot of inefficiencies that are a function of systems that are many decades old. That could be kind of custody fragmentation, the lack of synchronization of settlement, and often the inefficient use of capital and liquidity," McDermott explained. "And so, as you kind of play that through and this is what I fully expect for next year is – when you actually start to see people adopt the technology, they’ll recognize that not only can you see a commercial proposition on the forward, you can actually see it today." 

"And on a very micro level, we’re already doing this, we’re active in this space, and we’ve already started to see the kind of commercial value of that. And as I look at a broader cross-section of the market now that’s really focused on this space, they’ve realized you can reduce risks, the operational settlement, but also the jump risk in terms of the allocation of collateral," McDermott said.

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He went on to say that in 2024, he thinks growth will be primarily focused on more vanilla asset classes before it gradually begins to spread into more opaque asset classes toward the end of the year and beyond.

"I fully expect a significant growth in adoption from the buy side next year," McDermott said.

"Then I think probably towards the latter end of the year, probably the following and beyond, you’ll start to see kind of a focus on some of these more opaque asset classes where the value proposition probably is kind of greater just purely because of the opaqueness in pricing, probably less liquidity and most transparency," he added. 

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The Securities and Exchange Commission is weighing applications for approval of spot exchange-traded funds (ETFs) for bitcoin and ethereum which could occur early in 2024, making those securities available for traders. McDermott said that approval will bring more institutional investors into the digital assets market even if they are not necessarily directly investing in the underlying assets.

"One, it broadens and deepens the liquidity in the market. And why does it do that? It does that because you’re actually creating institutional products that can be traded by institutions that don’t need to touch the bare assets," McDermott said. "And I think that, to me, that opens up the universe of the pensions, insurers, etc."

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He added that while he does not expect the approval of spot cryptocurrency ETFs to cause a major immediate change in the marketplace, it will grow over the course of the year.

"I think what you’ll see gradually and throughout the year, even if it’s approved, kind of first quarter, is a broadening and a deepening of the liquidity and those looking to trade the product. It is, as we all know, the highest performing asset class this year."