Last week, the US leading investment and financial services company, Goldman Sachs, held a conference call diving into the state of the US economy with a couple of slides focused on Bitcoin.
Given current market uncertainty driven by the Coronavirus pandemic, Goldman Sachs held a bearish opinion on Bitcoin and cryptocurrencies overall. As such, the investment bank did not consider cryptoassets as a real asset class nor as a suitable investment for their clients. See the slide below summarizing the company-wide view on cryptoasssets.
Two years ago, due to rising demand by various clients such as hedge funds and endowment funds for holding Bitcoin as a virtual precious metal similar to gold, the New York Times reported that Goldman Sachs would be using its own money to trade Bitcoin derivatives contracts. On May 2, 2018 when the article was published by Nathaniel Popper, the price of Bitcoin was oscillating around $9,000. In the 4th quarter of the same year, the overall crypto asset industry experienced a market correction over the same time frame as the US equity market correction. While the S&P 500 Index nosedived by 17.5% from late September to December 2018, the price of Bitcoin lost almost half its value, at that time, dropping from $6,621 to $3,797.
Although the exact starting date of when Goldman Sachs’ Bitcoin trading began was not specified in the article, the general crypto market outlook in 2018 indicates their likely portfolio performance for their clients that year. For example, if Goldman Sachs started Bitcoin trading in June 2018, the investment bank would have lost exactly half of its Bitcoin holdings denominated in USD by late December 2018.
Due to a lack of strong understanding of the fundamentals and benefits of Bitcoin, the we presume that this has led Goldman Sachs to since cease trading Bitcoin. For example, one month after Goldman Sachs announced its Bitcoin trading operation, in an interview with CNBC, the SEC Chairman Jay Clayton specifically clarified that Bitcoin is not a security. However, as you can see in this above slide, the investment bank alluded to Bitcoin being a security nevertheless. On a final note, Rana Yared, one of the executives who used to oversee the creation of the Bitcoin trading operation at Goldman Sachs, confessed to the New York Times that she was not a true believer in Bitcoin and this likely influenced the company-wide view on cryptoassets as a whole.
Needless to say we don’t especially agree with Goldman’s thoughts on Bitcoin and cryptoassets. And their past history of investment research hasn’t always been the most accurate. Let’s have a look at two pictures: the first shows a slide from a Goldman Sachs presentation pitching WeWork to institutional investors in 2019. The company was sold with motivational quotes from Mother Theresa, Steve Jobs, and Bob Marley. To describe the pitch as being indicative of Irrational Exuberance is an understatement.
The second image shows WeWork’s valuation before and after their subsequent failed IPO. The company’s valuation has fallen by more than $40 billion in the wake of Goldman’s pitch for the company and WeWork’s numerous management issues.
Investors were nearly fooled by Goldman Sachs once, we think it’s wise not to be fooled twice by their research. Take their opinions on Bitcoin with a pinch of salt.