Retail Investors Fuel Crypto Surge, Goldman Sachs Reports

21 March 2024

Retail Investors Propel Crypto Rally as Institutions Begin to Engage

In a recent statement, Mathew McDermott, Goldman Sachs’ head of digital assets, highlighted the significant role retail investors have played in the latest cryptocurrency rally. According to McDermott, while individual investors have been the primary force behind the surge in crypto prices, institutional interest is beginning to make its presence felt.

Bitcoin, the leading cryptocurrency, soared to a record high of $73,794 last week and has seen a 50% increase this year alone. This bullish trend has also influenced other cryptocurrencies in the market. “The price action … has still been driven by retails primarily. But it’s the institutions that we’ve started to see come in,” McDermott remarked at the Digital Asset Summit (DAS) conference in London. He noted a significant shift in appetite among institutional investors.

Goldman Sachs, which established a cryptocurrency trading desk in 2021, has observed a substantial change this year, not only in client profiles but also in trading volumes. McDermott reflected on the challenging previous year but acknowledged a “big sea-change” as the new year unfolded.

Analysts speculate that the recent gains in Bitcoin may be attributed to the influx of billions of dollars into US spot bitcoin ETFs launched this year, which McDermott believes has caused a “psychological shift”. However, the Bitcoin rally has recently decelerated amid expectations that the Federal Reserve may not reduce interest rates as much as anticipated.

Bankruptcy Claims and Future Prospects

The crypto boom during 2020 and 2021 was fueled by ultra-low interest rates that encouraged speculative investments. However, a series of bankruptcies in 2022, including the high-profile collapse of FTX, erased $2 trillion from the market and left many investors facing losses. McDermott mentioned that Goldman Sachs is exploring bankruptcy claims and other investment opportunities within the crypto space.

Despite warnings from regulators about the high-risk nature of Bitcoin and its limited real-world applications, McDermott observed that current leverage levels in the system are not as extreme as they were during the peak of 2021 and 2022.

Goldman Sachs is among several banks interested in leveraging blockchain technology beyond cryptocurrencies. While there have been pilot projects for blockchain-based financial assets like bonds, routine issuance and a liquid secondary market are yet to be established. McDermott remains optimistic about the future, stating, “I do think over time we’ll start to see more asset classes get tokenised and actually get some scale – but maybe that’s one or two years down the line.”


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