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Why You Should and Shouldn’t Care About Goldman Sachs’ Report on Bitcoin

Investment banking giant Goldman Sachs is being criticised for their division’s poor research on Bitcoin (BTC). But it could be argued that the larger reason why the Cryptoverse should care about their latest presentation is that the bank is spreading misinformation to potential BTC investors, while their own agenda remains unclear.

“Cryptocurrencies including bitcoin are not an asset class” and “[we] 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,” the Consumer and Investment Management Division at Goldman Sachs wrote in slides presented to their clients during a call yesterday. They also stressed the asset’s volatility, lack of correlation with other assets, possible use for illicit activities, reminded of hacking instances, and questioned its scarcity and inflation hedge status.

The bank also shared their belief “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.” Furthermore, they compared BTC to the infamous, first recorded speculative bubble, Tulip mania.

Moreover, the bank is also skeptical about gold, saying they don’t recommend it for clients’ investment portfolios either.

The Cryptoverse is slamming the report and is criticizing Goldman Sachs for their poor research, a number mistakes made, especially given the weight the words from such a large company carry and therefore spreading false information to potential investors. Mobile crypto wallet app Abra’s CEO, Bill Barhydt, listed four key issues with the bank’s analysis:

    Goldman won’t recommend buying something they don’t (can’t) sell. It’s like saying we have 1000 items in our store but what you should really get is that 1 item in the store across the road. Once they are able to sell #bitcoin to their clients they’re going to go 180 on this.

    — Marcus Swanepoel (@marcusswanepoel) May 28, 2020

    However, it was also pointed out that not everyone within the bank may feel the same about BTC, and that generally, one section may not know what the other is doing. Matthew Graham, CEO of the China-based advisory company Sino Global Capital, wrote that it’s “an enormous organization that is not necessarily all on the same page,” and that “this is a middling report from a division within the Consumer and Investment Management Group.” Kelvin Koh, co-founder and partner at Spartan Capital and a former Goldman Director of Research, added that this particular division “is not known for their analytic prowess.” He later added that Goldman Sach’s “digital assets team just reached out to say that the view from [Consumer and Investment Management Group] team did not represent their views.

    Meanwhile, Matthew Edwards, Co-Founder & CEO/CIO of Dalpha Capital Management, stressed that this report was written by an investment management group whose business is to attract, retain assets and “perform on those assets.”

    “Innovative thinking in most asset management businesses is more likely to be punished than rewarded,” he added.

    13/ But not all hope is lost since: 1) Other parts of GS have made investments in the space already (Circle, Coinba… https://t.co/Npm6Qh7QLo

    — Matthew Edwards (@Eddyfication)

    And as Abra’s Barhydt compared BTC to the Internet, Koh recalled an episode starring Facebook.

    Goldman’s anti-crypto take basically seems like a bunch of warmed over arguments from 2014 (or earlier). Lots to criticize in the space, but I think people need to do more than talk about tulips and drug dealing. https://t.co/KFGeNAZJye

    — Joe Weisenthal (@TheStalwart) May 27, 2020

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    Correction: individual stocks don’t have limited supply either. Companies can keep issuing more stock and dilute existing shareholders.

    — SpartanBlack (@SpartanBlack_1) May 28, 2020

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