Last week, a presentation from the wealth management division of Goldman
But, the ostensibly pessimistic stance of Goldman Sachs towards Bitcoin does not entirely reflect the bank’s perception of cryptocurrencies.
To properly evaluate the position of Goldman Sachs on Bitcoin, three factors have to be considered: its historical statements about crypto, reports on the exploration of a BTC trading desk, and the fact that the recent presentation came from a single division.
On May 28, during a discussion about Bitcoin, gold, and inflation, the Goldman Sachs wealth management division said Bitcoin is not a “suitable investment for our clients.”
One slide of the presentation read:
“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. We also believe that while hedge funds may find trading cryptocurrencies appealing because of their high volatility, that allure does not constitute a viable investment rationale.”
According to Ethan Vera, former investment banker at Goldman Sachs and current executive at a crypto mining firm, the perception of Bitcoin by one division does not necessarily mirrors the bank’s viewpoint.
The crypto executive noted that the principal strategic investments group is “completely separate” from the wealth management division that gave the presentation.
“I really do think Goldman is further ahead than most of the other Banks on Bitcoin.”
Similar to many hedge funds and investment firms, Goldman Sachs is taking a cautious stance on Bitcoin. The dominant cryptocurrency’s market capitalization still stands at merely $178 billion, which is less than 3% of gold’s.
In recent months, an increasing number of institutional investors have started to invest in Bitcoin.
Grayscale, an investment firm that allows institutions to invest in Bitcoin through publicly-tradable investment vehicles, said it recorded $503.7 million in investments in the first quarter of 2020.
A staggering 88% of the investments came from institutional investments, “dominated by hedge funds” according to Grayscale.
It seems the growing institutional demand for Bitcoin from hedge funds since January 2020 prompted Goldman Sachs to release a presentation about Bitcoin to its clients.
Since 2015, Goldman Sachs made several moves that portrayed the bank’s cautiously optimistic attitude regarding Bitcoin.
Five years ago, the bank invested in a Bitcoin company called Circle. At the time, NYTimes journalist Nathaniel Popper described the $50 million deal as a boost for Bitcoin’s reputation.
“Its investment in Circle should help solidify Bitcoin’s reputation as a technology that serious financial firms can work with,” Popper wrote.
In November 2017, during an interview with CNBC’s Kayla Tausche, then Goldman Sachs CEO Lloyd Blankfein emphasized he is open-minded about Bitcoin.
“It has not crossed my desk to set up a Bitcoin trading desk, but I wouldn’t preclude it.,” Blankfein said less than three years ago.
Blankfein also stated:
“I have an open mind about these things [bitcoin and cryptocurrencies] because there are a lot of things that work really really well today that I thought was stupid and wrong. I have a much more open mind about this and I know a lot of history of finance and I pointed out that there was a time wherein people only took gold coins.”
In May 2018, reports speculated that Goldman Sachs had plans to open a Bitcoin trading desk, which have since been withdrawn.
Rana Yared, one of the Goldman Sachs executives who reportedly oversaw the development of the trading operation according to the NY Times, said at the time:
“I would not describe myself as a true believer who wakes up thinking Bitcoin will take over the world. For almost every person involved, there has been personal skepticism brought to the table.”
But, in September 2018, Goldman Sachs Chief Financial Officer Martin Chavez said the bank was working on a bitcoin derivative to meet the demand from clients.
Like any other bank, Goldman Sachs remains undecided about Bitcoin and its future. But, institutional adoption is rapidly growing and with JPMorgan reportedly opening accounts for crypto exchanges, the perception of major financial conglomerates may change in the medium to long-term.