Goldman Sachs: Bitcoin and cryptocurrencies are not an asset class

An internal document reveals that Goldman Sachs does not consider Bitcoin and cryptocurrencies as an asset class. 

It was a communication sent out to clients entitled “Cryptocurrencies Including Bitcoin Are Not an Asset Class”, in which Goldman Sachs warns that they are assets that:

•  do not generate cash flow like bonds, 
• do not generate gains from global economic growth, 
• do not provide diversification benefits due to their unstable correlations,
• do not reduce volatility, as their historical volatility is 76%. 

They also claim that there is no evidence that they can be used as a hedge against inflation, as assumed for example by Paul Tudor Jones of Tudor Investment Corporation. 

At this point they add: 

“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”.

The second page of the disclosure states that cryptocurrencies can be used for illegal activities, including Ponzi schemes and ransomware, with an additional reference to the 17th-century Dutch tulip bubble.

This has caused an uproar on Twitter, with hundreds of reactions. 

For example, Cameron Winklevoss writes: 

“Bitcoin does “not generate cash flow like bonds.” Because it’s not a bond. And the sky is blue”.

And then he reiterates:

“Hey Goldman Sachs, 2014 just called and asked for their talking points back. 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”.

His twin brother Tyler adds: 

“Goldman Sachs: In 2019, $2.8 billion in Bitcoin was sent to currency exchanges from criminal entities.

Fun Fact: Goldman Sachs facilitated $6 billion in money laundering via 1MDB scandal between 2012-13.

Double standard much?” 

Anthony Pompliano notes that nowadays there are even government bonds that not only do not generate cash flow but are in fact a cost. 

There are those who point out that Bitcoin’s market capitalization is twice that of GS, and those who recall that in the past GS actually wanted to open a trading platform for cryptocurrencies. 

Some even suggest that GS does not collect commissions when a client buys BTC. 

In fact, it is possible that Goldman Sachs may have some confusing ideas about Bitcoin. For example, a note by one of their analysts in August 2019 recommended considering buying bitcoin because it was believed that the short-term goal for the price of BTC was to reach $13,971.

At that time the price of BTC came out of a real rally, which took it from $3,500 at the beginning of the year to over $13,200 at the end of June. 

However, by the end of July, it had already dropped below $10,000 again, and in August, it tried to go back up to $12,000 and failed to do so, only to drop back to $10,000 in September. 

Since then, it has never been able to stabilize solidly above this figure again, and it hasn’t even reached $11,000.