The Wall Street megabank is preparing to buy off companies that have been impacted by the collapse of FTX and the crypto bear market. Goldman Sachs believes that there is a need for trusted institutions and stricter regulations in the industry.
Investment banking giant Goldman Sachs is setting aside ‘tens of millions’ of dollars to purchase crypto companies that have been hit by the implosion of FTX. In an interview given to media outlet Reuters, Mathew McDermott, an executive at Goldman Sachs, said that big banks are utilizing the current market downtrend to promote tougher regulations for the industry. The executive added that Goldman Sachs is currently doing its due diligence on some crypto firms that are “priced more sensibly”.
FTX, which once was one of the largest cryptocurrency exchange by trading volume and valued at $32 billion, filed for Chapter 11 bankruptcy in early November after it was revealed that the company had mismanaged over $10 billion worth of customer funds through a complicated business relationship with trading firm Alameda Research. The companies owned by Sam Bankman-Fried are under investigation by the U.S Securities and Exchange Commission (SEC) for the sale of FTT tokens that were not registered as securities. FTX’s collapse was the latest blow to the crypto industry that was already affected by some high-profile bankruptcies and depressed markets this year.
The FTX fiasco created a domino effect that now has spread to other firms with exposure to the company, such as crypto lenders BlockFi and Genesis. Last week, BlockFi declared bankruptcy after it suspended all customer withdrawals. The company, which faced liquidity constraints during the summer’s bear market and laid off 20% of its workforce, received $400 million in line of credit from FTX. Sam Bankman-Fried also agreed to purchase the crypto banking platform for $240 million next year. However, the implosion of FTX dashed all hopes for the crypto lender. BlockFi, which was once valued at $5 billion, owes $1 billion in liabilities to 100,000 creditors.
Institutional crypto lender Genesis was also heavily impacted by the crypto bear market. The company with a $2.3 billion exposure to now bankrupt crypto hedge-fund Three Arrows Capital (3AC) was already facing liquidity constraints. Genesis, which processed over $130 billion in crypto-backed loans last year, has $12.5 billion in active loans this year. The lender’s derivatives unit had a $175 million exposure to FTX, where the funds were locked in a trading account. In an effort to thwart liquidity constraints, the company was looking to raise $1 billion from investors which failed to go ahead as planned. The crypto lender suspended all withdrawals on November 16th.
Difficulties faced by Genesis have now affected cryptocurrency exchange Gemini, which is liable to receive $900 million from the company. Last year, Genesis had agreed to become the main lending partner for ‘Gemini Earn’ – a program that allowed Gemini customers to lend their crypto assets to the investment crypto bank in return for up to 8% in interest from various cryptocurrencies. Gemini suspended Gemini Earn and has been working to redeem customer funds from the troubled crypto lender.
In June, Goldman Sachs raised $2 billion from investors to purchase all crypto assets held by now bankrupt crypto lending firm Celsius. The company, which once had crypto funds worth over $12 billion under management, filed for insolvency in July after facing liquidity constraints. The platform suspended all activity and froze customer funds before going under.
This year’s crypto bear market added with the collapse of some industry heavyweights has presented megabanks like Goldman Sachs with the golden opportunity to buy and invest in companies and their assets at a lower market price.