“Not A Viable Investment Rationale” Goldman Sachs On Cryptocurrencies And Bitcoin

Dalmas Ngetich
May 28, 2020 Updated July 21, 2022
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Hedge funds may find cryptocurrencies like Bitcoin appealing because of their high volatility but that doesn’t constitute a viable investment rationale.

This is what a Goldman Sachs official concluded during a client-facing call on May 27, 2020 effectively dismissing digital currencies as a worthwhile and emerging class that deserves to be considered.

Following their conclusion, Bitcoin prices soared above $9,000 as the total crypto market trading volumes rose $11 billion.

Bitcoin BTC Price Performance May 28, 2020
Bitcoin BTC Price Performance May 28, 2020
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 The Central Bank Money Minting

As reported by CoinGape, the crypto community was keen to see whether the investment bank would endorse Bitcoin considering the current monetary policies adopted by central banks as the effects of COVID-19 push economies to the edge.

To stimulate economic activities and shield companies from its adverse effects, central banks have announced aggressive—sometimes unlimited—quantitative easing programs where trillions would be re-injected to the global economy.

This can drastically affect inflation due to high money supply consequently draining the purchasing power of fiat currencies like the USD or the Euro.

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Bitcoin and Crypto Don’t Cut It Says Goldman Sachs

Bitcoin, dubbed the digital version of gold, given its scarcity element can be an alternative to gold as a safe haven asset.

However, because it remains unregulated without a robust market, its price tend to heavily fluctuate. It is this high volatility Sharmin Mossavar-Rahmani, the chief investment officer for wealth management at Goldman Sachs, took an issue with before dismissing Bitcoin as an inappropriate asset class.

Some cryptocurrencies, the bank said, were securities dependent on someone else buying at a higher price, insinuating that digital assets have no utility and drive action conforms to a phenomenon called the Greater Fool theory.

Combined with the low cash flow, lack of correlation with other markets, and the absence of evidence to support Bitcoin as an hedge against inflation, were enough reasons to dump crypto.

“We believe that a security whose appreciation primarily depends on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients.”

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The Response From The Crypto Community

Still, the crypto community is confident of digital currencies and some were expecting Goldman Sachs to conclude as they did and thrash cryptocurrencies.

In their argument, they view cryptocurrencies as disruptive agents whose widespread adoption portends the demise of investment banks like Goldman Sachs.

Bitcoin adherents add that Goldman Sachs analysts failed to do their homework and seem to have dusted off some of their old talking points, literally hitting the replay button.

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Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
Ad Disclosure: This site may feature sponsored content and affiliate links. All advertisements are clearly labeled, and ad partners have no influence over our editorial content.

Why Trust CoinGape

CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights Read more…to our readers. Our journal analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.

About Author
About Author
Dalmas is a very active cryptocurrency content creator and highly regarded technical analyst. He’s passionate about blockchain technology and the futuristic potential of cryptocurrencies and enjoys the opportunity to help educate bitcoin enthusiasts through his writing insights and coin price chart analysis. Follow him at @dalmas_ngetich
Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
Ad Disclosure: This site may feature sponsored content and affiliate links. All advertisements are clearly labeled, and ad partners have no influence over our editorial content.