Goldman Sachs hosted an investment advisory call for its clients yesterday, which re-ignited a long running dispute between the cryptocurrency and the banking community.
The investor call, dryly entitled “US Economic Outlook & Implications of Current Policies for Inflation, Gold and Bitcoin”, was announced to Goldman Sachs’ clients last week.
While the invitation gave little away around the nature of the insights the bank was going to share, some in the cryptocurrency community read between the lines, concluding that the financial services giant was about to signal to the market that the recent unprecedented economic events may have finally persuaded the bank to endorse Bitcoin given its association with being a hedge against inflation. Nothing, it transpired, could have been further than the truth, as the select few who attended the invitation-only call were to quickly learn. Rather than endorsing Bitcoin, the analysts instead presented a scathing analysis of the cryptocurrency.
In a slide entitled “Cryptocurrencies Including Bitcoin Are Not an Asset Class," the bank alliterated a number of reasons to support its view that Bitcoin lacked legitimacy, stating that it provides no cash flow or earnings through the exposure to global growth, nor does it provide diversification, nor dampen volatility and has shown no evidence of being an effective hedge against inflation.
Invoking the greater fool theory, the analysts concluded; "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."
Drugs, Guns, Tulips And Gold
The bank continued to twist the knife by then highlighting historical cases where Bitcoin has been used for illicit purposes.
Goldman analysts were also dismissive of the argument commonly made by bitcoin bulls that while Bitcoin itself does not offer dividends and coupon payments, it has value based on scarcity, in much the same way that gold does. In other words, if gold and silver can have value, then so can Bitcoin.
Tulips were scarce too and still people lost a lot of money, argued the analysts, adding that Bitcoin’s metric rise and subsequent fall were much worse, comparatively, than in Gouda tulip bubble of 1636-37.
The investment analysts also poured scorn on the notion that Bitcoin is actually scarce in the first place, explaining that while there is a fixed supply of 21 million coins, there have been various forks of Bitcoin which, in essence, demonstrates that an abundance of the the cryptocurrency can be increased with the mere click of a button (or few).
It wasn’t purely Bitcoin that received a thumbs-down from the banking giant. The bank also gave gold a short thrift, challenging conventional wisdom that it is a natural hedge against inflation.
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