Goldman Sachs, Cumberland wade deeper into Bitcoin, Ether derivatives

Finance giants Cumberland and Goldman Sachs have moved to offer clients exotic crypto derivatives in the form of unilateral options.
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Cumberland Global and Goldman Sachs — two of finance’s biggest names — are moving to offer clients new ways to gain exposure to Bitcoin (BTC) and Ether (ETH).

Major market maker Cumberland launched over-the-counter (OTC) bilateral options on both top cryptocurrencies last week. Wall Street bigwig Goldman Sachs is also working on similar contracts.

Bilateral OTC options differ from unilateral ones, where just one party is liable at the settlement date.

  • A bilateral option is an agreement between counterparties in which each side swears to fulfil their obligations at settlement.
  • Writers of bilateral call options can specify the amount of crypto they must sell if called.
  • These contracts allow greater customization for customers.

As opposed to standard options that trade on regulated exchanges in standardized contracts, OTC options are created peer-to-peer, usually through a secure messaging system.

Both Cumberland and Goldman Sachs will offer bilateral options on their existing OTC markets.

DRW’s Cumberland launches a new “bespoke” crypto bilateral options suite.

Professionals regard OTC options as exotic financial contracts. They allow buyers and sellers to deal directly with each other rather than transacting through a formal exchange.

Investors turn to OTC markets when formal exchanges don’t meet their needs (such as trading unlisted products, large orders, or general discretion).

Goldman Sachs, Cumberland compete with crypto natives in options market

Deribit and FTX’s LedgerX are the largest retail crypto options exchanges. Investors often trade options with leverage.

Crypto firms like Genesis, Galaxy Digital, Alameda Research, Jane Street, Jump Crypto, and GSR — the big fish in crypto options — generally service whales and other institutional players.

Cumberland in Chicago (a subsidiary of trading giant DRW) is one of the largest liquidity providers for OTC bilateral options contracts.

Chicago’s options markets, especially CME and CBOE, are famously the most liquid in the world.

Due to regulatory challenges such as anti-money laundering requirements, large banks and trading firms have faced obstacles operating crypto options markets.

Trading and asset management firms hesitated due to some crypto companies’ histories of dodging regulatory requirements.

Still, Goldman Sachs opened trading in non-deliverable forwards of crypto assets last year. In addition, the bank helps facilitate larger trades between clients by providing liquidity and taking margin risks on behalf of clients.

This handy explainer from CA Rachana Ranade covers the basics of options contracts.

Read more: [Tether Papers: This is exactly who acquired 70% of all USDT ever issued]

Cumberland acknowledged the growing market for crypto assets and derivatives (like options) in the announcement of its bilateral options trading service.

And ultimately, both Cumberland and Goldman Sachs found this growing demand for crypto trading products attractive enough to prepare ETH and BTC bilateral options for their clients.

Cumberland also plans to provide liquidity for CME Group’s Micro Bitcoin and Micro Ether options, which will begin trading on March 28.

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