Lending markets

Wall Street Seems to Smell Opportunity in Struggling Crypto Markets

The cryptocurrency’s market capitalization plunged almost 70% from an all-time high of US$2.9 trillion in Novembertriggering a cascade of distress as well as speculation that several high-profile crypto operators are on the brink of insolvency.

For crypto critics, it’s the “I told you so” moment, pointing to the unilateral freezing of client accounts on wonky trading platforms to bolster the argument that the the bubble burst. However, most financial markets have experienced their period of bubbles, it is the good deals that remain when everything explodes that interests experienced investors. Cue Wall Street.

Goldman Sachs Group, one of the world’s largest investment banks, is reportedly seeking to raise US$2 billion to buy troubled assets from Celsius Network, one of the first crypto lenders to freeze withdrawals. Several others followed by freezing client accounts, including crypto derivatives exchange CoinFLEX last week.

Goldman, which had $2.5 trillion in assets under management in 2021 according to its website, would assess the interest of Web3 crypto funds as partners in any bid on Celsius. If Goldman’s interest reports prove accurate – the bank declined to comment in the story first reported by Fortune – it is looking to buy Celsius for just 10% of the 20 billion US dollars the company was previously valued at.

“People are starting to see opportunity there, distressed assets will attract buyers,” said Tony Sycamore, financial markets analyst at City Index, a global forex trading platform. “Quite simply, there’s blood in the water and when you have blood in the water, the sharks start circling.”

Goldman isn’t the only one looking to strike a deal.

Asset manager Morgan Creek Digital is trying to raise US$250 million to counter an offer by crypto exchange FTX to bail out another crypto lender, BlockFi, which is among companies caught in the fallout from the implosion of the crypto hedge fund Three Arrows Capital (3AC).

Morgan Creek is reportedly concerned that the funding deal with FTX, led by billionaire Sam Bankman-Fried, would give FTX a prime path to buy BlockFi at a knockdown price and wipe out current investors, including Morgan Creek.

Those firms that study distressed assets “take a longer-term, bullish view of the market,” Sycamore said. Any rally in crypto prices is still a few months away and will depend on the US Federal Reserve abandoning interest rate hikes, he said.

The Fed is raising rates to fight US inflation, which hit 8.6% in May, the highest in four decades. He signaled that he would continue his policy and that rates could reach 3% later in the year compared to the current benchmark federal funds rate of between 1.5% and 1.75%.

Fed policy, the Covid-19 pandemic, and the war in Ukraine have all combined to weigh on economies and markets in 2022, including crypto.

Bitcoin lost more than 40% of its value in mid-June and fell below US$20,000 for the first time since December 2020, shortly after the Fed announced a 75-point rate hike. base on June 15.

Goldman’s interest in crypto should come as no surprise, said market analyst and former stockbroker Andrew Sullivan. Forkast. Goldman is trying to stay ahead of its competitors and they already facilitate crypto transactions for institutional and private clients, he said.

“It certainly gives them an edge over other banks who are probably looking at the same thing, but a lot more cautiously,” Sullivan said.

City Index’s Sycamore said the crypto world is going through a series of macro events that are “big earthquakes” for the industry and it remains to be seen what banking giant Goldman will be able to salvage from the rubble.

“They’ll probably find that $2 billion without too much trouble,” Sycamore said, referring to the announced bid for Celsius. “But under what conditions? How long do they intend to hold it? We just don’t know.