Discussions around Bitcoin and cryptocurrencies, in general, have reached the high seats of investment banking.
This becomes clear as the behemoth multinational investment bank Goldman Sachs hosted a conference call headlined US Economic Outlook & Implications of Current Policies for Inflation, Gold, and Bitcoin.
Perhaps somewhat expectedly, the banking giant used its platform to bash cryptocurrencies, making some particularly expressive comparisons.
Screenshots of the slide presentation were made available by many cryptocurrency proponents, including Anthony ‘Pomp’ Pompliano.
“Cryptocurrencies Including Bitcoin Are Not an Asset Class” – reads the first headline of the report, and it’s even here we can easily identify some wild misappropriations. Right off the bat, the SEC has carried numerous motions, halting various initial coin offerings for failing to comply with existing securities regulations.
Moreover, the Chairman of the SEC, Jay Clayton, conceded that the approach towards categorizing digital assets as securities isn’t static:
“A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition.”
In other words, while not all cryptocurrencies are regarded as securities by the SEC, some obviously are, hence making the categorization of Goldman Sachs questionable at best.
While there’s an ongoing debate on the legal status of cryptocurrencies, even the US Commodities and Futures Commission didn’t take them as lightly as the investment bank and stated that “virtual currencies have been determined to be commodities under the Commodity Exchange Act.”
Even though the report throws quite a bit of argument as to why Bitcoin is not an asset class, it’s safe to say that it fails across the board altogether.
“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” – reads the report.
Even if we ignore the fact that Bitcoin hasn’t been regarded as security at all, the obvious implication is that it lacks intrinsic value.
Well, to avoid ad hominem arguments and making the exact same claim about the US Dollar, Bitcoin does offer a lot to those who don’t take the money-printing streaks that the Federal Reserve is on to lately (and not just lately) lightly. Bitcoin is scarce, it’s preprogrammed, it’s easily transferable, and it’s censorship-resistant. It allows its users to own a plot of a digital real estate that has the potential to shape up the future.
Don’t take our words for it, listen to Jamie Dimon. He, much Goldman, compared Bitcoin to the infamous tulip mania, only to regret making these claims later on.
“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.” – continues the document.
Sure, cryptocurrencies are volatile. Their prices swing up and down constantly. But let’s not forget the fact that Bitcoin was the single, most-profitable investment of the entire last decade – isn’t this alluring enough?
Of course, any document outlining why Bitcoin is not a reliable investment needs to touch upon the bubble talk.
Does it really come as a surprise to anyone that Goldman Sachs stated that “the cryptocurrency mania dwarfed historical manias,” including the infamous tulipmania between 1634 and early 1637?
It’s an undeniable truth that Bitcoin rallied around 2,000% in 2017 alone, reaching its peak at $20,000 in December. It went on to lose about 85% of its value in the following year as it was trading at around $3,100 towards the end of 2019. Still, Bitcoin recovered.
Yet, if the coronavirus-induced crisis has taught us anything, it’s that age-old indices and legacy markets are also not immune to substantial plunges. The S&P 500 and Nasdaq 100 both lost about 35% of their value in a matter of days.
And since this is not an ad hominem argument, here’s the main difference: Bitcoin recovered entirely on its own. It didn’t receive trillion-dollar bailouts just to stay afloat. There were no circuit breakers to stop the bleeding – just a free market. Imagine what would have happened if there were?
While all of the above might give certain people comfort as to why Bitcoin is not an appropriate investment, to others, it sounds a lot like a justification for a missed opportunity.
