Goldman Sachs lists 5 reasons why bitcoin is 'not an asset class', nor 'a suitable investment' (BTCUSD)
- Goldman Sachs gave five reasons why it thinks bitcoin is “not an asset class” nor “a suitable investment” in a presentation Wednesday morning.
- Goldman observed that the cryptocurrency infrastructure is still young and susceptible to hacking or inadvertent loss, and that it is primarily used as a conduit for illicit activity.
- The bank said that it believes 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.”
- Goldman noted that the crypto bubble dwarfs all other bubbles, including historic manias like the tulip and dot-com bubbles.
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Goldman Sachs, led by Jason Furman and Jan Hatzius, said in a presentation on Wednesday that bitcoin “is not an asset class,” nor is it “a suitable investment.”
The bank gave five reasons why investors should shy away from the cryptocurrency:
1. Bitcoin does not generate cash flow like bonds.
2. Bitcoin does not generate any earnings through exposure to global economic growth.
3. Bitcoin does not provide consistent diversification benefits given its unstable correlations.
4. Bitcoin does not dampen volatility given historical volatility of 76%. Goldman points to March 12 when bitcoin fell 37% in a single day as evidence that bitcoin’s volatility is through the roof.
5. Bitcoin does not show evidence of hedging against inflation.
Goldman said 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…”
Additionally, although hedge funds may find trading cryptocurrencies appealing because of their high volatility, that alone does not constitute a viable investment rationale, the bank said.
Paul Tudor Jones is the latest hedge fund manager to add bitcoin to his portfolio.
Bitcoin bulls often point to the fact that bitcoin is scarce, as in, like gold, there is a limited supply of it (21 million coins once all of them are mined).
But Goldman countered the scarcity argument by pointing out that cryptocurrencies as a whole are not a scarce resource.
There are several thousand cryptocurrencies, with a combined market cap of around $250 billion. And three of the largest six cryptocurrencies are forks, or nearly identical clones — bitcoin, bitcoin cash, and bitcoin SV according to Goldman.
Other issues with bitcoin include that it’s primarily used as a conduit for illicit activity. It’s been used in ransomware attacks, money laundering, Ponzi schemes, and dark net market places for illicit goods.
On top of that, the infrastructure of cryptocurrency is still relatively young and is susceptible to hacking or inadvertent losses, Goldman said.
Lastly, Goldman said that cryptocurrency was the biggest bubble or mania ever. The meteoric rise of bitcoin and ether, another cryptocurrency, in late 2017 dwarfs that of the tulip bubble in the 1630s and the dot-com tech bubble of 2000.
Whereas tulip prices rocketed 485% in the year before reaching its peak, bitcoin jumped 2,292% and ether jumped 14,193% in the years running up to their respective peaks.
Technically, bitcoin is struggling with the $10,000 resistance level, and what it does at this make-or-break level could determine where bitcoin goes next.
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