Goldman Sachs says crypto is “not a suitable investment” on invite-only call

Written by Ruby Hinchliffe
3rd June 2020

Goldman Sachs outlined reasons why the bank thinks cryptocurrency is “not an asset class” and “not a suitable investment” for its clients on an invite-only leaked presentation.

The call last week, titled ‘US Economic Outlook & Implications of Current Policies for Inflation, Gold and Bitcoin’, surmised that cryptocurrencies offer neither cash flow nor a hedge against inflation.

Goldman’s presentation involved Harvard professor and chair of the Council of Economic Advisers, Jason Furman, and Goldman Sachs’ chief economist, Jan Hatzius. The slides were put together by the bank’s chief investment officer, Sharmin Mossavar-Rahmani.

One slide highlighted bitcoin’s use as a “conduit for illegal activity,” citing Ponzi schemes and ransomware.

One slide highlighted bitcoin’s use as a “conduit for illegal activity”

“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 slide read.

It also drew parallels to the Dutch tulip bubble, a period in the ‘Dutch Golden Age’ where contract prices for some – then newly fashionable – tulip bulbs reached extraordinarily high levels from 1636, before dramatically collapsing in 1637.

The leaked slides drew criticism from a community of crypto enthusiasts who have long been battling to change the mindsets of incumbents like Goldman.

Co-founder of cryptocurrency exchange platform Gemini, Cameron Winklevoss, said in a tweet.”Hey Goldman Sachs, 2014 just called and asked for their talking points back.”

Chief operating and financial officer at Liechtenstein-based crypto exchange Bittrex Global, Stephen Stonberg, says the bank’s “dismissive and negative position” on bitcoin is simply down to the fact it cannot currently make a profit on it.

“Goldman makes money from charging management and performance fees on assets held at Goldman in either its in-house or third-party manager products,” says Stonberg.

“In the current crisis their AUM [assets under management] on traditional asset classes will be suffering with market declines. The last thing they need is for their clients to start allocating away from asset classes on which Goldman Sachs can charge fees.”

Stonberg adds that the bank’s report should have been called: ‘Goldman Sachs has no way to profit if its clients start allocating funds toward bitcoin and other crypto assets’.

The bank’s position on crypto has been called “dismissive and negative”

But despite the bank’s dismissal of cryptocurrency as an area of legitimate investment, bitcoin enjoyed a slight rise last week before reclaiming its $10,000 territory on Monday.

After weeks of stalled momentum since 12 May, which saw bitcoin’s price dip as low as $4,200 in a historic sell-off, the cryptocurrency has managed to bounce back to five digits after being stuck in the low-to-mid $9,000s.
At time of writing, bitcoin was trading at $10,106, with its highest peak in the last 24 hours hitting $10,398.

Unlike Goldman Sachs, Swiss securities giant SIX Group has been more open to bitcoin, leading a $14 million Series A investment and taking a 12% stake in start-up Omniex, an enterprise infrastructure which SIX hopes will connect its customers to more digital asset investment opportunities.

And last month, JP Morgan became the first major US bank to serve bitcoin exchanges – Coinbase and Gemini – as banking clients. Though the bank will, like Goldman Sachs, be getting little business in fees associated with processing payments for these clients. A banker told The Block there are likely “other associated benefits” for JP Morgan, such as the bank’s own coin being offered on either platform.