Cryptocurrencies may be risky and volatile, but Goldman Sachs thinks digital currencies like Bitcoin are a new investable asset class.
After years of institutional clients asking what cryptocurrencies are, Mathew McDermott, global head of digital assets at Goldman Sachs, said in a research report that clients are now asking how they can learn more about the topic. Institutional investors want to know how cryptocurrencies fit into their portfolios and how to get access to either the physical units or exposure through other products.
“Clients and beyond are largely treating it as a new asset class, which is notable—it’s not often that we get to witness the emergence of a new asset class,” McDermott wrote.
Goldman Sachs’ stance is a departure from its view just a year ago, when it declared in May 2020 that cryptocurrencies including Bitcoin were not an asset class. Its U-turn comes even as federal regulators have issued alerts for investors to exercise caution while investing in virtual currencies and warned about scams pertaining to cryptocurrencies.
So what turned the tide for Bitcoin and other digital currencies, prompting Goldman’s new stance? ”Client demand, pure and simple,” McDermott wrote, adding that the product offering is broader and people are more interested now in its underlying blockchain infrastructure. Bitcoin carries its own unique risk, partly because it’s still relatively new and going through an adoption phase, McDermott said. In addition, it doesn’t behave as one would expect relative to other assets, and is more akin to a “risk-on” asset like a common stock.
Bitcoin and other cryptocurrencies can be extremely volatile, to be sure. In just the past week, for example, Bitcoin fell as low as $31,248.62 on Sunday from a high of $45,532.39 on May 18, due in part to a regulatory crackdown in China. That decline is even more precipitous when compared to the highs of $64,000 Bitcoin touched in April.
Even so, McDermott said more institutional investors are moving into the space. Goldman’s Digital Asset team conducted a survey in early March that showed of 280 clients responding, 40% have exposure in some form to cryptocurrencies, with 61% expecting their holdings to increase over the next 12 months.