Crypto News: Goldman Says Crypto Is Not an Asset Class

Investing

In an investment presentation given by Goldman Sachs on Wednesday, Goldman listed a number of reasons why they think Bitcoin is not an asset class. The presentation said that not only was Bitcoin “not an asset class,” but that it also lacked the attributes of being a “suitable investment” at all.  

In Goldman’s presentation, it listed the following reasons for having this stance towards the cryptocurrency:

Key Takeaways

  • Goldman Sachs says cryptos are not an asset class citing lack of scarcity, cash flow, and a hedge against inflation for its reasons.
  • Grayscale, an institution offering crypto investments, is buying more Bitcoin than has been mined since the halving event.
  • Cardano announces dates for its Shelley release which will make its platform decentralized.
  • Cardano’s price jumped on this news with even more hope coming from the community regarding its future roadmap and a potential Coinbase listing.

Cryptocurrency advocates quickly turned hostile on a variety of social media platforms, most notably Twitter. Tyler Winklevoss, a co-founder of the Gemini crypto exchange along with his twin Cameron, tweet this about Goldman:

“Goldman Sachs: In 2019, $2.8 billion in bitcoin was sent to currency exchanges from criminal entities.
$2.8 billion in illicit activity is a good DAY for the U.S. dollar.
Ridiculous double standards.”

This tweet garnered well over four thousand likes and one thousand retweets, but “crypto-twitter” did not stop there. Meltem Demirors, the CEO of Coinshares, tweet a similar jab noting that:

“Goldman Sachs: admits guilt in jho lo / 1MDB scandal where $6.5B was laundered, pays one of the largest fines ever
also Goldman Sachs: bitcoin is bad because it has been used for money laundering which is also bad
y’all this is WILD”

These are some of the most influential members in the crypto-twitter community, with both of these accounts combining for over 300,000 followers. 

Following Goldman’s presentation, Bitcoin’s value actually increased, highlighting again some of the cryptocurrencies seemingly irregular price moves. On May 21, some twitter accounts alleged that Satoshi Nakamoto himself had moved some of his coins. This triggered a sell-off from fear of the pseudonymous character giving up on the currency. Many began to question the rationality of this concern, citing the decentralized nature of Bitcoin as a reason that Satoshi moving his or her coins is irrelevant. 

The notion that news of someone with an early Bitcoin address moving some coins, who was later determined to most likely not be Satoshi, caused a selloff, but one of the largest banks in the world declaring Bitcoin as essentially worthless caused a rise in price is, at best, confusing. That said, it’s important to note that the community members of this space are largely anti-bank and have the utmost respect for Bitcoin’s creator/s.

Goldman Sach’s presentation suggested that Bitcoin does not provide cash flow, does not offer diversification, and that it has not demonstrated itself as a hedge against inflation. Goldman also began to assert that Bitcoin is not scarce due to forks of its blockchain. This stance on Bitcoin’s scarcity is particularly interesting, given that cryptocurrencies that have forked from Bitcoin are entirely different cryptocurrencies with their own systems and do not enlarge Bitcoin’s supply.

Cameron Winklevoss, Tyler’s twin brother and co-founder of the Gemini exchange, said Goldman’s criticism was out-of-date:

“Hey Goldman Sachs, 2014 just called and asked for their talking points back.
Bitcoin was declared a commodity by the CFTC in 2015 in the Coinflip order…so yea it’s an asset whose price is set by supply and demand. Just like gold. Just like oil. It’s a commodity.”

Regardless of Goldman’s take on Bitcoin, the community has marched forward. Since the presentation, Bitcoin has gained nearly 6.5% and settled around the price of $9,450. Also, while Goldman Sachs is anti-Bitcoin, other financial institutions such as Grayscale, a firm offering a variety of crypto-related investments, is acquiring massive amounts of Bitcoin.

Since the halving, Grayscale has purchased more Bitcoin than has even been mined, creating lower liquidity on some exchanges and showing how Bitcoin can become more scarce as halvings occurr.

Independent researcher and twitter user Kevin Rooke tweet a chart highlighting how much Bitcoin Grayscale is accumulating:

Cardano’s Progress

Within the cryptocurrency community, there is a good deal of Bitcoin maximalism and those who declare that anything other than Bitcoin is a “shitcoin.” Bitcoin was the first of its kind, has an over 170 billion dollar market capitalization, and deserves some level of respect.

In this ideologies defense, there are a significant amount of cryptos that are merely copies or new takes on Bitcoin that offer no difference or upgrade to its system. But that doesn’t mean that there aren’t other projects that are working to build systems to drastically improve upon the same or similar principles of Bitcoin. 

Cardano is an altcoin that is largely unknown to those not in the cryptocurrency community. When looking through the vast sea of altcoins, or “shitcoins” as a Bitcoin maximalist would say, Cardano seems to stand out for a number of reasons. 

Cardano is a project that was launched in September 2017. The project is considered a third-generation cryptocurrency with Bitcoin being the first generation, followed by Ethereum in the second. Cardano is built through academic collaboration and peer-reviewed research, unlike really any other crypto project before it. Rather than a private for-profit organization building the system, it is being built by non-profit academics with the goal of scalable solutions to finance. 

IOHK, the team responsible for Cardano, is an engineering company that builds blockchains for institutions, government entities, and corporations. IOHK describes Cardano as “a blockchain platform with more advanced features than any protocol yet developed, and the first to evolve out of a scientific philosophy.”  

The nature of Cardano’s academic development has created a compelling reason for investors to be interested. The project had experienced many delays in the past and, at one point, needed to be completely rewritten from the ground up, causing healthy skepticism of the project’s future.

Nevertheless, it has maintained a solid following among the cryptocurrency community. The subreddit for Cardano has more members than all of its major proof of stake and smart contract competitors, short of Ethereum. 

Cardano has been called a scam by some as it is not decentralized yet. It is still controlled by IOHK and its development team. The much anticipated next phase of Cardano’s roadmap, dubbed “Shelley”, is the phase in the roadmap that achieves decentralization.

On May 28th, in a surprise announcement from Charles Hoskinson, co-founder of Ethereum and founder of Cardano, the dates for Cardano’s Shelley phase was released and it was closer than many expected.

This release of dates showed the community that Shelley would be released as early as June 30th with full implementation of its staking system to be rolled out by August 18th. In a matter of minutes after the announcement was made Cardano was up over 8% and it would then pump nearly 20% as the day went on and the news spread. It has since settled to over 16% above the price before the announcement was made. 

While many could have been waiting for Cardano to be truly decentralized before investing, others could have just joined on the hype, causing the price to surge higher.

Along with decentralization comes a number of other implications. Coinbase and many other exchanges have specific criteria for coins to be listed on their platform. Perhaps the most important aspect is that a cryptocurrency is entirely decentralized.

This way, Coinbase listed coins have less potential to scam its investors. For example, if a centralized cryptocurrency were to be listed on Coinbase and its creators sold all of their stake and abandoned the project, the coin’s value would drop and negatively hurt many investors. 

In the past, Coinbase listings have caused some large price jumps as investors are bullish on how much more exposure the coin will have on such a popular exchange. This is something that the Cardano community has been expecting since the announcement.

Aside from Cardano’s addition of decentralization, staking rewards, and the whiff of a potential coinbase listing, its future looks bright. Looking ahead its roadmap includes the following phases:

Goguen: This phase will introduce smart contracts and the platform’s ability to offer financial products like loans and savings accounts. Cardano’s site describes Goguen like this: “Where the Shelley era decentralizes the core of the system, Goguen adds the ability to build decentralized applications (DApps) on Cardano’s solid foundation of peer-reviewed research and high-assurance development.”

Basho: This phase intends to implement methods to scale this system further to allow for people to use the platform en masse without the network becoming slowed down. Cardano’s site says that “Basho is about improving the underlying performance of the Cardano network to better support growth and adoption for applications with high transaction volume.” Cardano’s Hydra scaling solution aims to achieve as many as 1 million transactions per second, vastly improving upon Visa’s average of 1,700 transactions per second. 

Voltaire: This final phase will introduce better systems for the blockchain to govern itself. This system will include a treasury and voting system where “network participants will be able to use their stake and voting rights to influence the future development of the network.”

Altcoins deserve heavy amounts of skepticism. The cryptocurrency space, in general, has seen excessive amounts of fraud and illegal scams and some have stolen exceptional amounts of money from unsuspecting investors. This is due to the largely non-existent, or downright confusing, regulations put in place thus far. 

While it is important to maintain a healthy skepticism of really any product you may use, it should not be assumed that Bitcoin is the end all be all of the cryptocurrencies at its current state of around 7 transactions per second. Of course, updates can be made to improve the Bitcoin protocol, but that doesn’t mean there isn’t room for other projects. Cardano is just one of the many, albeit one of the better examples, of projects looking to rebuild the financial infrastructure into a cheaper and more efficient system.

Cryptocurrency Performance: Year-to-Date

  • Bitcoin (BTC) YTD: 31.29%
  • Bitcoin Cash (BCH) YTD: 17.03%
  • Ripple (XRP) YTD: 2.47%
  • Ethereum (ETH) YTD: 69.25%
  • S&P 500 YTD: -5.77%

Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) can be highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.

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