Published: June 2nd, 2020
In what is probably the worst disapproval of Bitcoin this year, giant investment bank Goldman Sachs has denounced the world’s first cryptocurrency, terming it an inappropriate investment tool. The bank gave five reasons why it believes Bitcoin is not an asset class. Either way, the stand affirms further that the discussion on Bitcoin and other cryptocurrencies now rests in the high seats of commerce and investment banking.
In a presentation on Wednesday, May 27, Goldman Sachs Inc. denounced Bitcoin as an asset class, terming it an inappropriate for investment. The bank’s conference call titled US Economic Outlook and Implications of Current Policies for Inflation, Gold, and Bitcoin was presented by the bank’s senior executive Jan Hatzuis and Harvard economist Jason Furman. It gave five reasons why Bitcoin is not suitable for investment.
According to the material, investors should keep off Bitcoin because, unlike bonds, it does not create cash flows. Besides, the premier cryptocurrency does not foster earnings either through exposure to global economic growth.
The presentation added that although Bitcoin has the most unstable correlations, it does not have any consistent diversification benefits. Bitcoin has a volatility that is incomparable, and despite this fact, the coin has significant shortfalls, according to the giant investment bank.
Pointing to the March 12, 2020 fall when Bitcoin slumped almost 40% within 24 hours, the bank’s presentation stressed that Bitcoin could not dampen volatility despite its historical volatility of 76%.
Goldman Sachs Inc. also said that Bitcoin is yet to present any evidence that it can cushion investors from inflation.
According to the bank, Bitcoin appreciates because investors in the market are willing to buy it at a higher price. This quality does not make Bitcoin suitable for investment. Goldman Sachs also downplayed the love affair that hedge funds have recently had for cryptocurrencies.
Since hedge funds only love trading cryptocurrencies because of the coins’ high volatility, the bank said that the very reason should be a deterrent since volatility is not a viable rationale to inform an investment strategy.
It appears that Goldman Sachs’s stand is not popular among hedge fund managers. Paul Tudor Jones, an elite hedge fund manager, recently became the latest to add Bitcoin to his trading portfolio. The coin reacted in the incident by shooting past $10,000.
Bitcoin bulls share in the fund managers’ new school of thought. They say that since Bitcoin is scarce, much like gold, it is an excellent asset. However, Goldman Sachs Inc. says that scarcity should not be an argument for investing in cryptocurrency. According to them, cryptocurrencies are not a scarce resource. The world has at least two thousand cryptocurrencies, with a total market capitalization of more than $250 billion. So, saying that they are scarce hardly makes sense.
Goldman Sachs added that three of the top six crypto coins are forks, essentially making them closes of Bitcoin.
The bank had other not so encouraging words to say about Bitcoin. From its standpoint, Bitcoin is chiefly the underworld’s currency of choice. Goldman Sachs Inc. says that the cryptocurrency facilitates ransomware attacks, Ponzi schemes, and money laundering.
The bank also thinks that the infrastructure supporting cryptocurrencies is considerably young and may be vulnerable to hacking and associated inadvertent losses. Goldman Sachs also pointed out that crypto is the biggest bubble the world has ever seen.
The astronomical rise of Bitcoin and Ether (ETH) in 2017 far outstrips that of the dot-com tech bubble at the turn of the century and the Tulip bubble back in the 1630s. Tulip prices managed a modest 485% price increase before attaining the peak price. The price does not compare fairly to that of BTC, which rose almost 2,300% before peaking. ETH, on the other hand, managed a meteoric 14,193% in the months running to its peak.
Even though the presentation puts a compelling argument illustrating why Bitcoin may not be an asset class, crypto industry experts feel that it failed across the board. According to George Georgiev, the editor-in-chief of the CryptoPotato, Bitcoin has great value benefits for individuals who do not buy into the money-printing spree that the Federal Reserve is currently undertaking.
George goes on to say that Bitcoin is scarce, preprogrammed, easily transferable, and censorship-resistant. He says that these features allow Bitcoin to assure users of a portion of digital real estate that may sway the future.
George’s sentiments echo those of Jamie Dimon, a one-time fierce critic of cryptocurrencies. The CEO of JPMorgan Chase had earlier in 2017 castigated the world’s first cryptocurrency, just as Goldman Sachs is doing now. He referred to Bitcoin as a fraud adding that he’d not hesitate to fire any of his employees that choose to trade in Bitcoin, saying that such a move is stupid.
Jamie later backtracked from the sentiments, admitting in public that he regretted calling Bitcoin a fraud.
The news that the bank was going to release a report detailing the economy, gold, and cryptocurrencies had excited enthusiasts. Many hoped that the bank would put its massive weight behind crypto coins.
However, the bank disappointed many people soon as the details of its conference call came to light. Bitcoin bulls reacted by pushing the coin up 4.1% on Wednesday, May 27, sending the crypto coin to $9,225. Technically, the price has maintained an upward trend, but the critical resistance still rests just slightly below $10,000.
Goldman Sachs Groups Inc., on Wednesday, May 27, released a report blasting Bitcoin as an inappropriate investment vessel. The contents of the report released via a conference call stated five points that discredit the world’s first cryptocurrency from being considered as an asset class. However, experts disagree with this school of thought. The crypto industry luminaries interviewed stated that Bitcoin is scarce, easy to transfer, and resists censorship. It is one of the only assurances sitting between the markets and the Federal Reserve that is on a runaway money-printing spree.