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Goldman Sachs betrays bitcoin | FT Alphaville

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Remember when Goldman Sachs ❤️d bitcoin?

Back in the heady days of 2017 and 2018, the investment bank was so excited about this potential new asset class that it was said to be considering launching a bitcoin trading desk, a huge step in the direction of “mainstream adoption”.

The bank’s analysts would put out notes predicting all-time highs for bitcoin based on exciting bits of technical analysis, while former executives seemed to be leaving Wall Street in droves to pursue illustrious careers in crypto.

In early 2018 (peak mania), Goldman was said to have “caved” on bitcoin, putting out a nine-page report entitled “Bitcoin as Money”. Could bitcoin succeed as a form of money? “In theory, yes,” the bank’s economists wrote.

But then in August 2018, with the price of cryptocurrencies having collapsed, it seemed the party was already over. Sharmin Mossavar-Rahmani, the chief investment officer of the bank’s private wealth management group, said declines would likely continue, and that she didn’t reckon bitcoin fulfilled any of the traditional roles of money.

You can only imagine bitcoiners’ excitement and bullish hopes, therefore, when they discovered the bank was due to hold an investor call on bitcoin on Wednesday, mid global pandemic and economic collapse – the kind of event that, if anything can, justifies bitcoin’s existence.

This was Coin Telegraph, a relatively mainstream crypto site, just four days ago (emphasis ours):

Goldman Sachs will host a conference call on May 27 titled US Economic Outlook & Implications of Current Policies for Inflation, Gold, and Bitcoin…

The news has been heralded as a milestone for the institutional adoption of crypto assets, appearing to signify a complete u-turn on the part of Goldman’s Mossovar-Rhami (sic) — who stated that cryptocurrencies fail as mediums of exchange, stores of value, and units of measurement, in August 2018.

But alas, it seems the milestone in institutional adoption was not a milestone in the direction that the bitcoiners’ wanted.

On Wednesday, slides from the call showed Goldman sticking the knife in, and twisting it. They listed five reasons that “Cryptocurrencies Including Bitcoin Are Not an Asset Class”:

  • Do Not Generate 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 Historical Volatility of 76% – On March 12, 2020, the price of Bitcoin fell 37% in one day

  • Do Not Show Evidence of Hedging Inflation

Before concluding:

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.

(And adding, for good measure, that cryptocurrencies “abet illicit activities such as Ponzi schemes, ransomware, money laundering, and darknet markets”.)

Suffice to say, the bitcoiners were not happy.

Coin Telegraph, so upbeat on Goldman just a few days ago, went with “‘What Are You Smoking?’ Winklevoss Pans Goldman Sachs Bitcoin Bashing” for their headline, declaring that “tired claims that Bitcoin and cryptocurrencies are not an asset class say more about Goldman Sachs and the banking system itself” and fuming about Goldman “wheel(ing) out legacy Bitcoin complaints”.

So much legacy systems. So much boring bankers. Lock ‘em all up, we say. Who wants institutional adoption anyway? (When’s the JP Morgan crypto investor call, anyone?)

Related links:
“Cryptoassets” are crashing again. Is it time to start calling them cryptoliabilities instead? – FT Alphaville

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