Bitcoin: not worth much – except what someone else is willing to pay for it.
Goldman Sachs’ withering assessment of bitcoin this week may be enough to take some wind out of the sails of those who have been looking for the marquee name in crypto to find its way into mainstream commerce.
As reported by the Financial Times, Goldman was once a staunch advocate of bitcoin, and had been, just a few years ago, examining whether to launch a bitcoin trading desk. And in 2018, just after bitcoin’s price seemingly peaked at the end of 2017 at just under $20,000, the famed investment firm said bitcoin could indeed be used as a form of currency.
But on Wednesday (May 27), according to the FT, Goldman analysts held a conference call titled “Economic Outlook & Implications of Current Policies for Inflation, Gold and Bitcoin.”
During that call, analysts and slides stated that cryptos are “not an asset class.” That is in part due to the fact that the cryptos do not generate cash flow or earnings, and are not instruments of investment diversification.
“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,” they stated.
Elsewhere, another slide from the call noted that bitcoin has been used in Ponzi schemes and ransomware attacks (where last year there were 1,000 such attacks costing $7 billion), and darknet market revenues reached roughly $800 million last year. Meanwhile, money laundering represented $2.8 billion sent to currency exchanges from criminal entities.
In at least one bit of backlash, Tom Masojada, co-founder of OVEX Digital Asset Exchange, said on Twitter that “many investments that Goldman labels as ‘suitable for clients’ do not generate cash flows and are primarily dependent on whether someone is willing to pay a higher price at a later date.”
The nod to speculation caps a period where bitcoin, as volatile as ever, recently traded at roughly $9,300, off a recent low of around $8,700.
And as we noted in this space, the recent trading is well off lows that were a bit below $5,000 amid global selloffs of all sorts of holdings in March. There was some excitement earlier in the month as reports claimed JPMorgan will provide banking services to Coinbase and Gemini, two crypto exchanges. We noted then that JPMorgan is providing cash management services for the exchanges’ U.S. customers, and reportedly will process wire transfers, deposits and withdrawals from the Automated Clearing House (ACH) network. It may be telling that the banking giant will not provide services for bitcoin transactions, which will be the purview of the exchanges.
There is at least some indication that bitcoin will have plenty of competition from central banks, a number of which are developing their own versions of digital fiat. And, as coinmap.org has shown, as of the end of this month, 19,373 venues and ATMs can accept or dispense cryptos. Hardly critical mass – and Goldman’s critique this week seems to signal that at least one major name in financial services that might have given bitcoin some claim to legitimacy has decided to sit this one out.