The U.S. bank's consumer and investment management division released a slide deck ahead of an investor call Wednesday, examining the impact of the coronavirus outbreak on the U.S. economy. A sizable chunk of the presentation focused on bitcoin and other virtual currencies.
"Cryptocurrencies including bitcoin are not an asset class," Goldman Sachs' Investment Strategy Group wrote in the opening of one slide. The deck detailed several reasons why cryptocurrencies couldn't be considered an asset class in their own right, claiming they don't generate cash flow likes bonds or earnings through exposure to global economic growth.
"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," the group wrote.
"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."
Many industry analysts have been pointing to increased interest from institutional investors like hedge funds as a potential catalyst for price rises. Such speculation grew after hedge fund veteran Paul Tudor Jones said earlier this month that he has almost 2% of his assets in bitcoin.
Crypto enthusiasts had eagerly anticipated the Goldman call, with some assuming the 151-year-old bank might lay out a case for investing in bitcoin. Needless to say, they didn't get what they wanted on Wednesday.
The Winklevoss twins, co-founders of the cryptocurrency exchange Gemini, were among the most vocal in the backlash to Goldman's claims.
"Hey Goldman Sachs, 2014 just called and asked for their talking points back," Cameron Winklevoss said in a tweet.
His brother, Tyler, claimed, "The more I think about it, the Goldman report is probably a head fake," referring to a sports tactic used to throw an opponent off by pretending you're moving in one direction only to then move the opposite way.
Goldman drew a comparison between bitcoin's monster rally in late 2017 — when it surged close to $20,000 — and the Dutch "tulip mania" of the 17th century, one of the most well-known speculative bubbles in history. Similar comparisons have been made previously by bank executives — most notably J.P. Morgan CEO Jamie Dimon, who called bitcoin a "fraud" that will eventually "blow up."
Goldman played down the idea that bitcoin is a "scarce resource," noting that some of the most valuable coins — bitcoin cash and bitcoin SV — are "forks." This means the new coins that have been created out of changes in the protocol of the bitcoin network.
Bitcoin bulls often claim the digital asset's limited supply is part of what underpins its value and makes it a potential "hedge" against currencies which are vulnerable to devaluation in times of economic crisis.
The bank also called cryptocurrencies a "conduit for illicit activity," highlighting their use in fraudulent schemes and money laundering.
"It's important to note that Goldman Sachs' competitors Fidelity and JP Morgan have made significant investments in cryptocurrency," said Dave Hodgson, chief investment officer and managing director of NEM Ventures, a cryptocurrency-focused venture capital firm. Fidelity last year set up a separate unit devoted to cryptocurrency clearing and custody, while J.P. Morgan developed its own internal digital currency, "JPM Coin," for payments.
"While volatility is indeed high, the year-on-year, and now decade-long performance is a consistent uptrend based on holding the asset, not trading the volatility. By considering it unviable for its investors, Goldman Sachs has risked causing its investors to miss out on one of the best performing asset classes in the past 100 years, never mind the last 10."
Correction: This story has been amended to reflect the fact that the presentation was written by Goldman Sachs' Investment Strategy Group.