Multinational investment bank and financial services provider Goldman Sachs has made it clear that it’s not recommending its clients to invest in digital currency, saying, “Cryptocurrencies, including Bitcoin, are not an asset class.”
Why Goldman Sachs disapproves of digital currencies
On May 27, Goldman Sachs released a presentation deck shortly before hosting a client-facing call regarding “U.S. Economic Outlook & Implications of Current Policies for Inflation, Gold and Bitcoin.”
In it, the investment bank makes it clear why they “do not recommend bitcoin on a strategic or tactical basis for clients’ investment portfolios even though its volatility might lend itself to momentum-oriented traders.”
Among the reasons they provide, Goldman Sachs claims that digital currencies are not an asset class, that digital currency allows individuals to execute illicit activity, and that digital currency exchanges are a prime target for hacks and theft of user funds.
Where digital assets fall short
Goldman Sachs provides several reasons in regards to why it deems digital currencies are not an asset class. Slide 30 of their presentation deck states that cryptocurrencies:
Do Not Generate Cash Flow Like Bonds
Do Not Generate any Earnings Through Exposure to Global Economic Growth
Do Not Provide Consistent Diversification Benefits Given Their Unstable Correlations
Do Not Dampen Volatility Given Historical Volatility of 76% – On March 12, 2020, the price of Bitcoin fell 37% in one day
Do Not Show Evidence of Hedging Inflation.
The slide goes on to say,
“We believe that a security whose appreciation is primarily dependent on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients.
We also believe that while hedge funds may find trading cryptocurrencies appealing because of their high volatility, that allure does not constitute a viable investment rationale.”
It is not surprising that a traditional financial institution like Goldman Sachs is not fond of digital currencies. Many digital currencies cannot be analyzed or compared to traditional financial instruments like bonds. And given that the digital currency market is only 11 years old, it does not have the track record that many traditional, risk-averse investors are looking for in an asset.
The blockchain and digital currency community disagree… so do Goldman Sachs clients
Many blockchain and digital currency supporters strongly disagree with the recent Goldman Sachs report. Larry Cermak, the director of research at The Block, believes Goldman Sachs clients may disagree too.
Hey Goldman Sachs, 2014 just called and asked for their talking points back.— Cameron Winklevoss (@cameron) May 27, 2020
Bitcoin was declared a commodity by the CFTC in 2015 in the Coinflip order…so yea it's an asset whose price is set by supply and demand. Just like gold. Just like oil. It's a commodity.
Cameron Winklevoss, the co-founder of Gemini and principal of Winklevoss Capital, believes Goldman’s talking points are outdated, and that Goldman is ignoring the fact that Bitcoin officially became an asset in 2015 when the Commodity Futures Trading Commission declared Bitcoin a commodity.
Goldman Sachs does not make fees when a client buys #bitcoin— Dan Tapiero (@DTAPCAP) May 27, 2020
Buying Btc is an implicit rejection of buying assets that Goldman Sachs sells upon which they make fees
Buying btc is a rejection of the worldview they sell upon which they make fees.
Long PTJ/Short GS
EVERY TIME pic.twitter.com/AIaiRojpeO
Dan Tapiero, the founder of DTAP Capital, suggests that Goldman Sachs does not want its clients buying digital assets, because Goldman Sachs does not make a profit when their clients buy or sell digital currencies.
What’s worth pointing out though is that if Goldman Sachs thinks Bitcoin is not a good investment, they must be getting a ton of interest from their wealth managemeny clients. Otherwise they would never be talking about it this prominently— Larry Cermak (@lawmaster) May 27, 2020
Larry Cermak points out that the fact that Goldman Sachs included digital currencies in their presentation deck must mean that their clients have expressed interest in digital currency allocations.
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.