The world of cryptocurrencies is maturing by the day. Not only are there now institutions looking to invest in the quickly misunderstood asset class, there are also more and more crypto-based financial products. Goldman Sachs is the first institution to offer a derivative that pays out in Ethereum (ETH). That writes Bloomberg†
It may not be so strange anymore that the profit of a financial product is paid out in crypto. We have known for a few years the ‘perpetual futures’, where you are not paid the profit of a trade in euros or dollars, but in the underlying. In the market for cryptocurrencies, this is for example bitcoin (BTC) or ether.
To be precise, it is now a ‘non-deliverable forward (NDF)† This product is quite complicated. It means that the buyer and seller agree in advance at what price a contract will be sold. The profit or loss is the difference between the price that has been agreed and the price that is valid for the underlying in the open market.
In most cases, the winnings are paid out in fiat currencies such as dollars and euros, but in this case it is ether. It is a way to speculate indirectly on the price of ETH.
Crypto further integrated into financial system
What is remarkable is that this has never been done before by an important institution from the world of traditional finance. The timing is also remarkable. So there is institutional demand while the market gives the impression of a bear market and while the macroeconomic picture is less and less prosperous.
huhIt’s funny that this contract is now combined with a cryptocurrency. Many crypto investors see crypto as a way to get around the old financial system. It is now clear that it will rather be integrated into the current system.
You will not find an NDF in the ‘normal’ markets for cryptocurrencies at the moment. They are probably too complicated for that. Investment banks are generally unwilling to offer such products to anyone and everyone, if governments allow them to do so at all.