Goldman Sachs (GS) is one of the most revered, and most reviled, firms depending on your perspective. Whether you view them as the Best of the Best or as the Vampire Squid, one thing is certain: their collective opinion carries a lot of weight. So, when GS recently pooh-poohed bitcoin (BTC) and cryptocurrencies as an asset class unworthy of client investment, as a GS alum who values his time with the firm, I definitely took notice and, upon reflection, feel compelled to read between the lines and offer my take on their assessment.
First, examine the context against which the assessment was made. Their opinion was part of a macro piece recommending client actions in the current economy. Unsurprisingly, their recommendations steer clear of services they cannot provide clients easily, namely buying spot gold and BTC. Additionally, just the mere fact that they addressed BTC in this report tells us that their clients have at least asked the question about adding it to their portfolios.
Second, they attempt to call into question BTC’s status as a currency or an asset. Their analysis uses a very narrow definition of currency, essentially limited to fiat currencies, which by their decentralized nature digital assets could never meet. I prefer a broader definition of money as anything that is a recognized store of value, divisible, portable, and cannot be easily counterfeited. Without devolving into an academic dissertation, BTC fulfills these requirements. Assets are stores of value as well so I believe that BTC also falls into that category. Come to think of it, GS recognizes an entire subset of “alternative assets” as legitimate asset classes (think real estate, collectible art, race horses), despite having less transparency to value than digital assets trading on fairly liquid exchanges and other platforms.
The other concepts used to discredit BTC are the same old drum beating around illicit activity and immature infrastructure. Neither of these arguments hold water as it is much easier to track a transaction on a decentralized public blockchain than it is a $100 bill in circulation. As for infrastructure, several large traditional players like Fidelity (who happens to be a GS client) are in the space and more are coming everyday.
Goldman Sachs is a huge company with more than 38,000 employees. One of the things that makes GS the best in class is openness of dialogue and intellectual honesty. A critical reason why I value my experience there was that I found it a place that cultivated a diversity of opinions and approaches. I still have many good friends at GS and can assure you that this macro piece does not reflect all of the opinions ruminating there. To paint the entire firm with an “anti-crypto” brush would be a mistake and an underestimation. The challenge we have in the digital asset community is winning the hearts and minds of even the staunchest adversaries by better articulating our vision.
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