Goldman Sachs: “Bitcoin is now considered an investable asset”

The research paper shows concern for the “inconsistent regulatory actions around the globe that impede the further development of the crypto space or the ability of more regulated entities to engage within it”, but shows hope as the tone seems to have “turned more constructive”.

bitcoin

Bitcoin has taken plenty of punches throughout the years and it still does, but money usually speaks louder. More and more investors – whether retail, professional, or institutional – have kept buying the asset or exposure to it, especially since late 2017.

In a recent research paper published by Mathew McDermott, Goldman Sachs’ global head of digital assets, the investment bank is clearly taking BTC seriously.

“Bitcoin is now considered an investable asset. It has its own idiosyncratic risk, partly because it’s still relatively new and going through an adoption phase.

“And it doesn’t behave as one would intuitively expect relative to other assets given the analogy to digital gold; to date, it’s tended to be more aligned with risk-on assets. But 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.”

The research paper shows concern for the “inconsistent regulatory actions around the globe that impede the further development of the crypto space or the ability of more regulated entities to engage within it”, but shows hope as the tone seems to have “turned more constructive”.

The SEC v. Ripple lawsuit is a perfect example of an unwelcomed outcome of what is seen as inconsistent regulatory action. One of Ripple’s key arguments is the “lack of due process and fair notice” affirmative defense.

It is possible that this lawsuit will fail to clarify the nature of XRP as it seems that Ripple Labs wants to push for a Summary Judgement on its lack of due process and fair notice affirmative defense.

The lawsuit agenda can be found here. The court is still to decide, among other things, on the SEC’s motion to compel Ripple to turn over documents regarding legal advice Ripple received about whether sales or offers of XRP were securities”.

Goldman Sachs’ research paper: Hedge funds are more active in this space

Goldman Sachs sees discussions with institutional clients revolving “around how they can learn more on the topic and get access to the space—as opposed to questions around what bitcoin or cryptocurrencies are—which was really the main topic just a few years ago”, said Mr. McDermott.

“But beyond that, asset managers and macro funds are interested in whether or not crypto fits into their portfolios, and if it does, how to get access to either the physical—by trading the spot instrument on a blockchain— or exposure through other types of products, typically futures.

“Hedge funds, perhaps unsurprisingly, are more active in this space, and are particularly interested in profiting from the structural liquidity play inherent in the market—earning the basis between going long either the physical or an instrument that provides access on a spot basis to the underlying asset and shorting the future”, Goldman Sachs’ Mathew McDermott concluded.

Most recently, Chinese authorities began cracking down on bitcoin mining and trading behavior. Hong Kong has announced it is considering banning crypto for retail investors. These negative headlines seem to have contributed to last week’s crypto market crash, powered by leveraged trading.

Also last week, Federal Reserve Chairman Jerome Powell spoke about the central bank’s work on a digital dollar. “The effective functioning of our economy requires that people have faith and confidence not only in the dollar, but also in the payment networks, banks, and other payment service providers that allow money to flow on a daily basis.

“Our focus is on ensuring a safe and efficient payment system that provides broad benefits to American households and businesses while also embracing innovation.”