Bitcoin Is a Fail for Retail Investors, Goldman Sachs Team Warns

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Bitcoin’s security is also a concern of Goldman Sachs’ Investment Strategy Group.

Dream time

When Bitcoin hit new highs last year, many wondered if they should invest in Bitcoin. Now a team of

Goldman Sachs

tells retail investors that digital currency isn’t worthy of most portfolios – at least not yet.

In a new report to private wealth management clients, Goldman’s Investment Strategy Group (ISG) found that bitcoin and other cryptocurrencies do not meet the criteria they believe will determine whether an asset class is “investable”.

“While the digital asset ecosystem could revolutionize the future of anything,” the team wrote, “it does not mean that cryptocurrencies are an investable asset class.”

Goldman’s ISG team applies five criteria to determine whether an asset, including Bitcoin, is a sound investment – and requires that at least three be met:

• Achieve a stable, reliable cash flow on a contractual basis, just like with bonds

• Generate income by engaging in economic growth, such as: B. Shares

• Providing consistent and reliable diversification benefits for a portfolio

• Curb volatility

• Providing consistent and reliable evidence to hedge against inflation or deflation as a store of value

Bitcoin missed every criterion. And the team pointed out that the cryptocurrency data is limited and sometimes of “poor” quality.

The note comes as Goldman is expanding its crypto offering to include institutional clients. Earlier this year, Goldman’s investment bank launched a cryptocurrency trading desk that focused on Bitcoin. In the coming months, the bank will offer its customers ether options and futures, Bloomberg reported.

For typical investors who lack the assets or access to portfolio strategies that would allow them to endure volatility, cryptos don’t make much sense. They are also unlikely to add value as a strategic asset class for consumer and retail clients, the ISG team wrote.

According to the team’s measurement, based on the “risk, return and uncertainty characteristics” of Bitcoin, a 1% allocation to the crypto in a portfolio with moderate risk would have to generate an annual return of 165% in order to make sense in a portfolio be. An allocation of 2% would require an annual return of 365%. But for the past seven years, Bitcoin has delivered an annualized return of 69%.

Just a few months ago, Bitcoin was trading up to $ 60,000. The recent slumps even occurred as the number of bitcoins increased, meaning the overall loss in market cap was much higher.

“Someone bought bitcoin at peak prices in April 2021 and someone later sold it at lower prices in May, so it actually lost some real value,” the team wrote.

Another concern of the team is the security of cryptocurrencies. There have been cases where investors’ private keys have been stolen so that they cannot access their coins. Hacking and cyberattacks also occur in what is known as the “traditional financial system”, but investors have more recourse. In the case of cryptocurrencies, as soon as a key is stolen, the investor is usually has no central authority to appeal to for their wealth back – in other words, “not your keys, not your coins”.

Write to Carleton English at carleton.english@dowjones.com