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Goldman Sachs Group Inc. offers bitcoin derivatives to investors to support cash payments

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Goldman will either offer Bitcoin-based exchange-traded notes to hedge fund clients or use a grayscale Bitcoin Trust.

Goldman Sachs Group Inc. is offering investors non-deliverable forwards (NDFs), a type of derivative linked to the price of bitcoin that can be paid in cash, Bloomberg reported on May 7.

Goldman Sachs will buy and sell bitcoin futures through a block trade on the CME Group (CME) to protect itself from volatility, with Cumberland DRW as a trading partner.

Max Minton, head of digital assets for Asia Pacific at Goldman Sachs, said, "Institutional demand in this space continues to grow dramatically, and being able to work with a partner like Cumberland DRW will help us expand our capabilities." The new product "paves the way for us to develop our emerging cryptocurrency capabilities for cash settlement."

Goldman Sachs this year reopened a trading desk to help clients trade Bitcoin-related publicly traded futures. The company said in March that it was also close to offering private wealth clients more tools to bet on cryptocurrency prices. But its move into the forward market has greatly improved its ability to help big investors build positions.

Wall Street banks have shied away from Bitcoin since its inception in 2009, with JPMorgan Chase & Co. CEO Jamie Dimon has threatened to fire any trader caught buying and selling the digital currency. Though the tone has since softened, the banking industry has long viewed bitcoin as the plaything of criminals, drug dealers and money launderers.

But client interest and the rise in bitcoin's price have changed many bankers' minds, with Morgan Stanley offering a bitcoin trust product to clients and JPMorgan in the process of launching a similar product.

Justin Chow, Cumberland DRW's head of global business development, said: "Goldman Sachs plays the role of a bellweiler, reflecting how sophisticated institutional investors respond to market changes." "This year, we have seen rapid adoption and interest in cryptocurrencies from more traditional financial firms, and Goldman's entry is another sign of the sector's maturity."

Banks remain cautious about the regulatory challenges of holding bitcoin directly. Because derivatives are settled in cash, Goldman's offering does not involve dealing with physical bitcoin. Similarly, Morgan Stanley and JPMorgan's trust companies give clients access to tools that track the price of bitcoin, while using third parties to buy and hold related digital assets.

Goldman could next offer exchange-traded notes based on Bitcoin to hedge-fund clients, or use the Grayscale Bitcoin Trust, one of the people said.