Many cryptocurrency enthusiasts argue that can work as a hedge against inflation because it is scarce: there is a finite supply of Bitcoin while there is a seemingly infinite supply of fiat money like the US dollar.
But Goldman Sachs thinks differently. The bank said in its report, "Digital Assets: Beauty Is Not in the Eye of the Beholder," that while some market analysts and investors may consider Bitcoin to be “digital gold,” that itself means next to nothing to Goldman:
“The argument that Bitcoin and cryptocurrencies are a digital version of gold does not confer any value to Bitcoin and other cryptocurrencies, because gold itself is not a consistent or reliable store of value,” the report said, adding that US equities are a far better bet as a hedge against inflation.
What’s more, the bank isn’t buying the “digital gold” narrative to begin with: “This cohort strongly disagrees with the view that cryptocurrencies like Bitcoin are digital gold,” the report noted. It went on to conclude that it does not believe Bitcoin to be “a long-term store of value or an investable asset class” for diversified portfolios.
But the bank did say that such assets can be “ideal for speculation.” The report equates Bitcoin with , the sixth-most valuable crypto asset by market cap, agreeing with the point of view that cryptocurrencies like DOGE can be traded for “gambling and having fun,” quoting crypto trader Scott Melker.
Dogecoin, which is up over 12,000% in the past year, is the perfect example of a volatile cryptocurrency. Many argue it has no intrinsic value and its price rapidly changes when people—usually billionaire entrepreneur Elon Musk—pump it on Twitter.
And Goldman Sachs noted that rapid price swings have put potential clients off. “The rapid price appreciation of cryptocurrencies; the media (and Twitter) blitz on Bitcoin, Ether, and even Dogecoin; and the diametrically opposing views of high-profile market participants have confounded many of our clients,” it said.
Goldman Sachs, one of the biggest investment banks in the world, has shown greater interest in cryptocurrency as of late. Only last year the bank slammed Bitcoin but the firm’s CEO, David Solomon, said in April that he is keeping an eye on the cryptocurrency. And the bank announced in March that it was restarting its crypto trading desk.
Though the latest report by the consumer and wealth management division of the bank concluded that crypto like Bitcoin is still “not a viable investment” for diversified portfolios—due to the risks involved. The firm lists regulatory risks (such as governments banning trading), environmental concerns and potential cyber attacks as reasons to stay away from cryptocurrency investing.
“Based on the risk/return characteristics of Bitcoin, and the fact that it does not meet any of the criteria required to be a strategic asset class in a client’s investment portfolio, we do not recommend investing in cryptocurrencies as an asset class,” the report said.
But Goldman Sachs is not completely shunning crypto. Just this week news broke that the bank plans to offer options and futures trading in . This is because, according to the firm, it does indeed have clients who are interested in participating in these markets. While Goldman getting into crypto derivatives is good for existing traders, since it helps add liquidity to the market, the move itself isn’t necessarily bullish.
After all, futures contracts allow investors to bet on the price going down just as easily as it going up.
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