Goldman Sachs Declares Bitcoin as an Official Asset Class

The declaration comes just a short while after opposing the designation, leading investors to speculate that the bank sees the long-term value of the currency.

The Report

A new report from investment bank Goldman Sachs has explicitly called Bitcoin an asset class. The report – “Crypto: a new asset class?” – analyses a number of market trends such as asset price, network usage, volatility and the YTD returns on a number of crypto assets. The report features essays from a number of people working within Goldman Sachs’ research divisions, including Zach Pandl (Markets Research), Jeff Currie and Mikhail Sprogis (Commodities Research), and Christian Mueller-Glissmann (Multi-Asset Strategy Research).

Zach Pandl of Markets Research argues that “institutional investors should treat bitcoin as a macro asset, akin to gold, going through a social adoption phase” while Jeff Currie Commodities Research posits that “cryptos are a new class of asset that derive their value from the information being verified and the size and growth of their networks.”

While the exact nature of the asset is still a point of contention, the consensus has crystallized around the fact it is an asset. Placing Bitcoin in the “asset class” basket is a considerable shift in position for the investment bank who only last year took the exact opposite position. The bank also took the view that Bitcoin “is not a suitable investment for our clients”. Goldman Sachs has since had a change of heart, much like Wells Fargo who previously rejected crypto, but are now offering it as an investment product for their wealthy clients.

Source: What Goldman Sachs said last year

Key Interviews

Besides essays the Sachs report also features interviews a number of well placed figures in the blockchain sector including: Michael Novogratz, the Co-founder and CEO of Galaxy Digital Holdings; Michael Sonnenshein, the CEO of Grayscale Investments; and Michael Gronager the Co-founder and CEO of Chainalysis.

The report also spotlights Goldman Sachs’ Head of Digital Assets as well as Nouriel Roubini, a Professor of Economics at New York University, whose outspoken and well-documented scepticism for all things blockchain and crypto-related, has earned him the colourful nickname ‘Doctor Doom’.

When asked why Goldman Sachs was proposing a new launch in the space, Mathew McDermott, Global Head of Digital Assets signalled the pragmatism behind Sachs’ decision: “Client demand, pure and simple.” 

McDermott was then asked whether clients also view Bitcoin as an asset class. He responded in the affirmative:

“Bitcoin is now considered an investable asset. It has its own idiosyncratic risk, partly because it’s still relatively new and going through an adoption phase… But clients and beyond are largely treating it as a new asset class, which is notable—it’s not often that we get to witness the emergence of a new asset class.”

He wasn’t the only one with a positive outlook on the prospects of bitcoin and cryptocurrency in general. Michael Novogratz, CEO of Galaxy Digital Holdings, said the following in regards to future designation of crypto as an asset class:

“Everyone from the major banks to PayPal and Square is getting more involved, which is a loud and clear signal that crypto is now an official asset class…. There’s still a lot of volatility, so people will wash in and out. But crypto is not going away. And a core group of crypto people see this as—and I quote the Blues Brothers here —“a mission from god”. They want to rebuild the infrastructure of the financial markets in a way that’s more transparent and egalitarian and doesn’t rely on governments who make bad decisions with our finances. They will never sell. And because of that, bitcoin and ether can’t go to zero.”

On the contrary side of the debate, as ever, was Roubini:

“Do institutional investors really want to get more involved? Maybe some do, but I don’t see it becoming mainstream. There’s an argument that because only a fraction of institutional money is currently invested in bitcoin relative to gold, the price of bitcoin could go to the moon as a result of asset reallocation from gold. But I’m doubtful institutions want exposure to an asset that can drop by 15% overnight.”

Here, once again, Galaxy Holdings CEO Novogratz has something of relevance to say:

“People still make stubborn arguments against it, but every single bank we know of is building a wealth channel for crypto, 14 entities have bitcoin ETFs in line at the SEC, and most tech companies are building bitcoin into their wallet and interface. To think we’re going to have less people believing in bitcoin isn’t logical.”

Coin Metrics

The positive report from Goldman Sachs follows an announcement that the bank led a $15 million investment round in the blockchain analytics firm Coin Metrics. The company provides network data, market data, indexes and network risk technology. Coin Metrics has recently added significantly to its offerings with a network risk management offering, and a universal block explorer.

With Mathew McDermott, Goldman Sachs’ Global Head of Digital Assets taking a seat on the Coin Metrics board, the company will be well armed with market data and analysis moving forwards.

Final Thoughts

Goldman Sachs joins a growing group of institutions which are speculating value in crypto, a number of them changing from opposition to support to do so. As traditional finance begins to FOMO in, a point at which crypto reaches critical mass, and can no longer be ignored, seems imminent. 

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