Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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Goldman Sachs Reconsiders Whether Bitcoin is Legitimate Asset
Decrypt | Tim Hakki | May 22, 2021
Little over a year ago, the investment bank said crypto was not an asset class. Now it’s taking a second look.
A forthcoming report by investment banking giant Goldman Sachs shows that the bank has read up on crypto.
Screenshots of the report were shared on Twitter today by Alex Krüger, economist, crypto trader and founder of asset management firm Aike Capital. He tweeted several screenshots from the Goldman Sachs report, entitled: ‘Crypto: a new asset class?’
Krüger said the report will be made available in its entirety on Goldman Sachs’s website “within a few days.”
The report includes perspectives from Michael Novogratz, founder and CEO of crypto investment firm Galaxy Digital Holdings, and Michael Sonnenshein, CEO of Grayscale, a crypto asset management firm that runs the largest Bitcoin trust in the world, alongside words from other financial execs and academic economists.
See: ETF investors say Coinbase listing will cause explosion in crypto investing
Unsurprisingly, Novogratz answers the question of crypto as an asset class in the affirmative. Goldman said in its report that the CEO
“argues that the mere fact that a critical mass of credible investors and institutions is now engaging with crypto assets has cemented their position as an official asset class.”
Also spoken to in the report is Nouriel Roubini, an economics professor at NYU, who flatly
“disagrees with the idea that something with no income, utility, or relationship with economic fundamentals can be considered a store of value, or an asset at all.” Nouriel “doubts the willingness of most institutions to expose themselves to cryptos’ volatility and risks.”
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Coindesk | James Rubin | May 22, 2021
Goldman’s Crypto Chief Worries About Fraud, but Not Cryptocurrency’s Future
The Global Head of Digital Assets at Goldman Sachs said in a Q&A published in the firm’s May 21 Global Macro Research newsletter that the cryptocurrency space, “particularly as it relates to hot storage,” was “only one big fraud away from a very negative impact on the market.”
Addressing a question about risks to the industry, Mathew McDermott, who was expressing his own views and not those of the research team,
also noted that “inconsistent regulatory actions” worldwide could “impede the further development of the crypto space.”
But McDermott, a nearly 16-year Goldman Sachs veteran, who was previously the firm’s Global Head of Cross Asset Financing, felt reassured that large crypto companies have been managing their “growth without any noticeable increase in fraudulent activity,” and encouraged about the industry. “It’s not often that we get to witness the emergence of a new asset class,” he said.
See: How Cryptocurrency is changing Fintech
Similar to most other large financial services firms, Goldman Sachs had been initially skeptical about cryptocurrency but overcame its doubts as demand for crypto-related investment products and services rose steadily among investors. Earlier this month, the investment banking giant announced in an internal memo that it had traded two kinds of bitcoin-linked derivatives and that it was aiming to participate more heavily in the market by “selectively onboarding” crypto trading service providers. It also recently launched a platform that provides crypto news and pricing.
McDermott said that the firm’s latest initiatives stemmed from rising demand among institutional investors and wealth managers.
“A portion of wealth management clients – high-net-worth individuals and family offices are already very active in the space and in some sense are leading the way for other investors,” McDermott said. “They remain interested in bitcoin, but are also increasingly focused on the broader value that cryptocurrencies can bring. They’re looking at ether in the context of the whole decentralized finance (DeFi) ecosystem and how that can really transform financial markets.”
In a March survey of 280 clients, Goldman Sachs’ Digital Asset team found that two in five respondents had some exposure to cryptocurrency, while about three in five expected to increase their holdings over the next year. The group also found that the Chicago Mercantile Exchange’s daily bitcoin futures activity in April grew a massive 900% compared to the same period a year ago.
But McDermott said that the firm is “only just starting to offer…clients access to the crypto space because of an uncertain “regulatory landscape.” He said that the firm was “looking into offering lending structures in and around the crypto space to corporate clients as well as structured notes,” and that it would “offer access to cryptocurrencies, specifically bitcoin, via fund or structured note-like products” for its wealth management clients.
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