Goldman Sachs studies crypto as an asset class—a year after stating the opposite

By Liam Frost

Major American investment bank Goldman Sachs has seemingly recognized that cryptocurrencies are an emerging new asset class after all—despite stating otherwise just a year ago, according to its recent report.

A part of this paper, posted on Twitter by economist Alex Krüger yesterday, explained that Goldman Sachs, among other things, turned to crypto-related companies like Galaxy Digital, Global FX, and Chainlaysis as well as critics such as Nouriel Roubini to hear their opinions.

Crypto, a new asset class – quite a comprehensive report by Goldman. pic.twitter.com/FP2sewJCTx

— Alex Krüger (@krugermacro) May 21, 2021

In the report, the bank’s researchers noted that many large cryptocurrencies are unique and rightfully occupy their specific niches on the market. For example, Bitcoin is a highly-capitalized currency, Ripple’s XRP is a real-time settlement system, Ethereum is a smart contract platform, Binance Coin is a token for practical applications, and Polkadot is a blockchain platform that can interact with other networks.

As such, the intrinsic characteristics of each crypto allow it to attract a specific user base, Goldman Sachs added. The value of Bitcoin, according to analysts, is built around its use and distribution. In this light, massive influxes of institutional capital have confirmed the attractiveness of cryptocurrency and a high degree of market development, noted Galaxy Digital CEO Mike Novogratz.

In his turn, Grayscale Investments CEO Michael Sonnenschein echoed this sentiment and called the limited emission of Bitcoin “a way to hedge against inflation and currency debasement.” He also noted that while cryptocurrencies failed to escape the turmoil amid the 2020 pandemic, they recovered faster and outperformed other asset classes.

2013-2016 sv 2017-2021 pic.twitter.com/7b1DG6pHXu

— Alex Krüger (@krugermacro) May 21, 2021

However, Nouriel Roubini, a professor of economics at New York University, said that he “entirely disagrees with the idea that something with no income, utility or relationship with economic fundamentals can be considered a store of value, or an asset at all.” He also doubted “the willingness of most institutions to expose themselves to cryptos’ volatility and risks, which the volatile price action in recent days has served as a stark reminder of.”

Goldman Sachs’ analysts also compiled a chart that illustrates all ups and downs throughout BItcoin’s history. According to it, Bitcoin has always rebounded to new highs—no matter how deep the declines were—since 2013.

“Cryptocurrencies Including Bitcoin Are Not an Asset Class” – Goldman Sachs. May 27, 2020 pic.twitter.com/1rnDBI3pVl

— Watson (@macroandcrypto) May 22, 2021

Notably, Goldman Sachs argued that cryptocurrencies are not an asset class almost exactly a year ago.

“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,” the bank said in late May 2020.

Since then, however, Goldman Sachs announced that it will offer Bitcoin and other cryptocurrencies to its private wealth management group and reportedly even launched a crypto trading team.

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