Let's Retire the Cryptocurrency/Tulip Bulb Mania Comparison

May 28, 2020 10:29 AM
Goldman presentation deck says crypto isn't a "suitable" investment
Crypto's historical correlations are inconsistent, which is natural for a new asset class
Don't lump all of crypto in one bucket
Crytpo and Bitcoin Market Cap Story of Day


According to several media sources, Goldman Sachs held a conference call this week where they suggested that bitcoin and cryptocurrency aren’t viable investment alternatives for their clients. We agree with parts of the call but mostly believe that nuances were overlooked and some arguments cite crypto-bear cliches.

Crypto media company The Block claimed that in a call with clients on Wednesday, a deck associated with the presentation read, "Cryptocurrencies including bitcoin are not appropriate as an asset class." The article pointed to the volatility and inconsistent correlations of the asset class for justification. The call did note that some professional traders, such as hedge funds, may be attracted to the space due to its volatility, however, that didn't  justify a passive allocation.

We can agree that bitcoin/crypto's historical correlations are inconsistent. That said, we'd argue that this is natural for a new company, asset etc... and that the changes in the maturity of the ecosystem would justify this dynamic. Investors like Paul Tudor Jones aren’t only observing backwards-looking correlations but making comparisons to assets with longer track records (in Jones' case, gold). The “bitcoin as a store of value” thesis involves looking ahead, seeing the general trends and making an assessment of the risk-adjusted chance of a particular outcome. 

We outright disagree with some of the Goldman deck's statements, such as the supposed claim that, “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 report even made the tired comparison between cryptocurrency and Dutch Tulip Bulb Mania. This is somewhat of a cheeky claim by Goldman Sachs, who have a history of recommendations and involvement in sectors that would later be referred to as bubbles. Furthermore, the piece doesn’t even give the sector the respect of unpacking the various use cases and discounted future utility of various crypto assets, instead of clumsily lumping all of crypto in one bucket.


About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at https://www.frnt.io/morningnote