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:
- not understanding or wanting to acknowledge what a deflationary asset is or what eventually happens to them all;
- not acknowledging the true nature of Bitcoin’s scarcity, or the strength of its hardened network leading to its value as the best hard money ever created;
- not understanding hard forks and incorrectly assuming that a hard forked cryptocurrency with the name Bitcoin mitigates Bitcoin’s scarcity feature;
- associating BTC with scams without acknowledging the Internet’s past and beginnings and parallels to BTC’s potential market maturation.
Other people have been pointing to the mistakes made in the report, and to Goldman Sachs own alleged dark past with money laundering, as well as to their connection to the Federal Reserve’s money printing machine, while many also believe the large Wall Street banks are not adapting to the times quick enough, or that they possibly have an agenda behind all this. Still, argued others, as soon as Goldman Sachs is able to sell BTC, they’ll reverse their position.
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, Coinbase, Bitgo); & 2) It wouldn’t surprise me at all to see one part of GS talk down crypto publicly while another part conjures up a more concerted effort of its own.
— Matthew Edwards (@Eddyfication) May 28, 2020
And as Abra’s Barhydt compared BTC to the Internet, Koh recalled an episode starring Facebook.
Even the smartest people make mistakes.
I recall in early 2011 as GS was preparing to invest in Facebook at a $50B valuation, David Solomon, then Head of IBD (and current CEO) stated that social media felt “bubblish”.
Little did he imagine FB would return >10x in <10 years.
— SpartanBlack (@SpartanBlack_1) May 28, 2020
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
Goldman Sachs was short mortgages when the subprime crisis hit.
They didn't tell anyone.
Do you think they'll tell you the truth about Bitcoin?
That they had to address Bitcoin on a major client call tells you everything you need to know.
— Cory Klippsten 🦢₿ 🎁₿ 🚀 (@coryklippsten) May 27, 2020
The funniest part about this is that they call Bitcoin a security, which is verifiably false based on regulator decisions.
Second, they are saying the best investment of the last decade is not suitable for their customers.
Great reminder of the opportunity ahead.
— Pomp 🌪 (@APompliano) May 27, 2020
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
So according to Goldman Sachs a store of value loses 18% in 10 years, smartest guys in the room! https://t.co/KqpypE47Sv
— Parker Lewis (@parkeralewis) May 28, 2020