Goldman Sachs Arrange Inc. signage is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Oct. 7, 2016.
Michael Nagle | Bloomberg | Getty Ikons
Goldman Sachs isn’t convinced there’s a case for investing in cryptocurrencies like bitcoin. Crypto evangelists — perhaps unsurprisingly — aren’t emphasized with its assessment.
The U.S. bank’s consumer and investment management division released a slide deck ahead of an investor request Wednesday, examining the impact of the coronavirus outbreak on the U.S. economy. A sizable chunk of the presentation focused on bitcoin and other accepted currencies.
“Cryptocurrencies including bitcoin are not an asset class,” Goldman Sachs’ Investment Strategy Group wrote in the initiation of one slide. The deck detailed several reasons why cryptocurrencies couldn’t be considered an asset class in their own right, contending they don’t generate cash flow likes bonds or earnings through exposure to global economic growth.
“We imagine that a security whose appreciation is primarily dependent on whether someone else is willing to pay a higher price for it is not a apt investment for our clients,” the group wrote.
“We also believe that while hedge funds may find trading cryptocurrencies pleading because of their high volatility, that allure does not constitute a viable investment rationale.”
Many manufacture analysts have been pointing to increased interest from institutional investors like hedge funds as a latent catalyst for price rises. Such speculation grew after hedge fund veteran Paul Tudor Jones voted earlier this month that he has almost 2% of his assets in bitcoin.
Crypto enthusiasts had eagerly anticipated the Goldman supplicate b reprimand, with some assuming the 151-year-old bank might lay out a case for investing in bitcoin. Needless to say, they didn’t get what they call for on Wednesday.
The Winklevoss twins, co-founders of the cryptocurrency exchange Gemini, were among the most vocal in the backlash to Goldman’s contends.
“Hey Goldman Sachs, 2014 just called and asked for their talking points back,” Cameron Winklevoss about in a tweet.
His brother, Tyler, claimed, “The more I think about it, the Goldman report is probably a head fake,” referring to a rollicks tactic used to throw an opponent off by pretending you’re moving in one direction only to then move the opposite way.
Goldman drew a commensurability between bitcoin’s monster rally in late 2017 — when it surged close to $20,000 — and the Dutch “tulip compulsion” of the 17th century, one of the most well-known speculative bubbles in history. Similar comparisons have been made previously by bank directorates — most notably J.P. Morgan CEO Jamie Dimon, who called bitcoin a “fraud” that will eventually “blow up.”
Goldman pleasured down the idea that bitcoin is a “scarce resource,” noting that some of the most valuable coins — bitcoin bills and bitcoin SV — are “forks.” This means the new coins that have been created out of changes in the protocol of the bitcoin network.
Bitcoin bulls repeatedly claim the digital asset’s limited supply is part of what underpins its value and makes it a potential “hedge” against currencies which are helpless to devaluation in times of economic crisis.
The bank also called cryptocurrencies a “conduit for illicit activity,” highlighting their use in packed with schemes and money laundering.
“It’s important to note that Goldman Sachs’ competitors Fidelity and JP Morgan have decamped significant investments in cryptocurrency,” said Dave Hodgson, chief investment officer and managing director of NEM Ventures, a cryptocurrency-focused plunge capital firm. Fidelity last year set up a separate unit devoted to cryptocurrency clearing and custody, while J.P. Morgan bring out its own internal digital currency, “JPM Coin,” for payments.
“While volatility is indeed high, the year-on-year, and now decade-long performance is a dependable uptrend based on holding the asset, not trading the volatility. By considering it unviable for its investors, Goldman Sachs has risked calling its investors to miss out on one of the best performing asset classes in the past 100 years, never mind the last 10.”
Remedy: This story has been amended to reflect the fact that the presentation was written by Goldman Sachs’ Investment Blueprint Group.