In a conference call with investors yesterday (May 27), the Investment Strategy Group (ISG) -- which is within the Consumer and Investment Management Division -- at Goldman Sachs explained why the American investment bank does not recommend Bitcoin for its clients' investment portfolios.
By looking at the slides used by Goldman, we can see that this was the summary of the argument against investing in Bitcoin:
Cryptocurrencies (such as Bitcoin) are not an asset class for the following five reasons:
- "do not "genrate cash flow like bonds"
- "do not generate any earnings through exposure to global economic growth"
- "do not provide consistent diversification benefits given their unstable correlations"
- "do not dampen volatility given hstorical volatility of 76%"
- "do not show evidence of hedging inflation"
- Although individual cryptocurrencies may have "limited supplies", cryptocurrencies are not really scarce (since thousands of different cryptoassets have been created since 2008).
- Cryptocurrencies have been used for illicit activities.
- It is possible to lose crypto funds by losing private keys or as the result of centralized exchanges (or other crypto custodians) getting hacked.
- The U.S. dollar will not be "debased".
This led Goldman to come up with the following takeaway:
"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."
Naturally, members of the crypto community on Twitter were not impressed by Goldman's argument.
The two most vocal members of Crypto Twitter on this subject were the Winklevoss twins:
Crypto educator and YouTube personality Ivan Liljeqvist:
Barry Silvert, Founder and CEO of Digital Currency Group (which is parent of Grayscale Investments):
Adam Back, Co-Founder and CEO of Blockstream:
Global macro investor Dan Tapiero:
It is interesting to note that Goldman Sachs' market cap is currently $72.10 billion, while Bicoin's market cap is (as of 11:32 UTC on May 28) $169.62 billion.
Also, as you can see in the two price charts below (from Google Finance and CryptoCompare respectively), in the year-to-date period, Goldman Sachs stock (NYSE: GS) is down 10.52% while the price of Bitcoin is up 28.40% against USD: