Cryptocurrency
What Goldman Gets Wrong About Bitcoin (From Someone Who Used to Work There)
As read on Coindesk, “When I worked at Goldman Sachs, one of the running jokes among those around me was that I spent more time trading bitcoin than the bonds I was meant to be covering. Back in 2013, bitcoin was not taken very seriously among my colleagues. Even seven years later, I did not expect much […]
As read on Coindesk, “When I worked at Goldman Sachs, one of the running jokes among those around me was that I spent more time trading bitcoin than the bonds I was meant to be covering. Back in 2013, bitcoin was not taken very seriously among my colleagues. Even seven years later, I did not expect much to have changed. So, as I started reading and listening to the Goldman Sachs research piece on bitcoin Wednesday, I was pretty sure I knew where it was going.
“The report begins with an overview of the state of the U.S. economy and projections as to what it may look like in a post-COVID-19 world. In particular, the report emphasizes that inflation is unlikely to be something to worry about anytime soon. Dollar demand remains strong and indicators show the pandemic has had effects that are, if anything, deflationary in nature. As I’ve written before, I think this is largely true for the short-to-medium term.
“Goldman’s research then goes on to make a largely data-driven argument against investing in gold. Not only do we not have to worry about inflation, it says, but even if we did, gold would not be a great investment. Gold has not consistently outperformed inflation whereas equities have. Similarly, U.S. Treasury bonds tend to offer a much better return in market downturns than gold. It turns out that gold does not always, or even often, behave as advertised. There are better options. The value of gold as an asset class has largely been driven by historical narrative – and that narrative does not line up with reality.
“This is all reasonable. And as I say, I thought at this point that I knew where this was going. I believed the talented team of Goldman research analysts was about to break down bitcoin in a similar way. The story that has been told around bitcoin as an inflation hedge does not line up to the reality of how bitcoin has performed over the course of its albeit brief life as an investable asset. The noisiness and volatility of its price action has prevented us from being able to draw a meaningful correlation between bitcoin and any major market or economic indicators. I expected Goldman’s report to conclude by summarizing that inflation is not an issue and that even if it was, neither gold nor bitcoin behave as the narratives around them might lead us to believe.
“I was wrong. Rather than make a parallel argument to the one that they made against gold – a feat that is eminently possible using the data at hand and would have made for a compelling case – Goldman research launched into a series of non sequiturs about the objectionable traits of and dynamics around bitcoin. They did exactly what I find the smartest people often do when confronted with something as ground-breaking as bitcoin: they abandon all reason…”