Goldman Sachs‘s efforts to help hedge funds and other big institutional clients wager on bitcoin have taken a step forward.

The bank has begun trading bitcoin futures with Galaxy Digital, the crypto investment firm founded by Mike Novogratz, CNBC has exclusively learned.

The trades represent the first time that Goldman has used a digital assets firm as a counterparty since the investment bank set up its cryptocurrency desk last month, according to Damien Vanderwilt, co-president of Galaxy and head of its global markets division.

The moves by Goldman, the preeminent global investment bank, may reverberate on Wall Street and beyond as banks increasingly face pressure from clients who want exposure to bitcoin. By being the first major U.S. bank to begin trading cryptocurrency, Goldman is essentially giving other banks cover to begin doing so as well, said Vanderwilt, a former Goldman partner who joined Galaxy last year.

“There’s a whole dynamic with the major banks that I’ve seen time and time again: safety in numbers,” Vanderwilt said this week in an interview. “Once one bank is out there doing this, the other banks will have [fear of missing out] and they’ll get on-boarded because their clients have been asking for it.”

Galaxy was scheduled to announce Friday that it will serve as Goldman’s “liquidity provider” – Wall Street parlance for a company that provides quotes for buy and sell orders –  on CME Group bitcoin futures. Last month, in a memo first reported by CNBC, Goldman said it would sign on “new liquidity providers to help us in expanding our offering.”

“Our goal is to equip our clients with best-execution pricing and secure access to the assets they want to trade,” Max Minton, head of digital assets for Goldman’s Asia-Pacific region, said in a statement. “In 2021, this now includes crypto, and we are pleased to have found a partner with a broad range of liquidity venues and differentiated derivatives capabilities spanning the cryptocurrency ecosystem.”

Goldman is leaning on Galaxy for access to the crypto world because the highly regulated banking industry can’t handle bitcoin directly, according to Vanderwilt.

But nothing prevents banks from dealing in financial wagers tied to the price of the underlying coins, and so that is where Wall Street is starting its crypto journey. There are parallels in the commodities realm, in which banks trade exposure to hogs or corn without owning the physical asset, he said.

Galaxy, whose management ranks are stocked with ex-Goldman executives familiar with running regulated businesses, positions itself as a bridge for financial companies and crypto venues. The firm, whose shares are listed on the Toronto Stock Exchange, will likely offer shares in the U.S. this year.  

It’s a step toward the vision that Vanderwilt and the other former Goldman executives have for the development of bitcoin’s market infrastructure. As more banks allow clients including hedge funds, pensions, family offices and sovereign wealth funds to trade bitcoin, the depth and breadth of the markets improves, which ultimately should lower bitcoin’s famous volatility, he said.

“You’re moving the market participants from being north of 90% retail, a huge chunk of which have access to ridiculous amounts of leverage, into an institutional community, who have proper, tried-and-tested rules and regulations about leverage, asset-liability mismatch and risk,” Vanderwilt said. “The more activity that moves into the institutional community, the less volatility there will be.”

Banks will be able to offer clients ways to wager on bitcoin using derivatives, taking a page from the world of established finance, he said. That includes arbitrage bets related to the price gap between CME bitcoin futures and bitcoin itself, relative value trades between bitcoin and ethereum, and the creation of bitcoin structured notes.

Goldman’s steps in cryptocurrency trading are happening despite sustained skepticism toward bitcoin from other parts of the firm. Most notably, the bank’s chief investment officer for wealth management has called bitcoin a bubble that isn’t appropriate for investors.

But if enough trading clients ask for a product, investment banks are obliged to provide it, a dynamic that Vanderwilt has seen in other nascent markets around the world during his two decades at Goldman.

“If the phone rings enough times and clients are trying to get exposure, you eventually figure out how to do it for them safely, understanding that your role in the world is to intermediate exposure safely, not to act as a fiduciary,” he said.

The milestone brings Vanderwilt full circle with his former life. In 2017, as a senior Goldman trading executive, he was tasked with helping start the bank’s first effort to trade bitcoin futures, a plan that was later shelved. Now he’s helping make it happen from his position at Galaxy.

“There’s a lot of irony, I smile about it a lot,” Vanderwilt said. “But I’m really happy, it’s a happy full circle.”