Why Is Goldman Sachs Calling Cryptocurrencies A New Asset Class? - Kalkine Media

May 25, 2021 03:48 PM AEST | By Abhijeet
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Summary

  • Investment bank Goldman Sachs in a note suggested that cryptocurrencies could become a new asset class.
  • Cryptocurrencies suffered a free fall over the weekend, after the earlier rally it saw.
  • The market recovered slightly on Monday morning as Ethereum was trading 11.3% higher to reach the $2,277 mark.

Investment bank Goldman Sachs in a note suggested that cryptocurrencies could become a new asset class. This comes at the backdrop of cryptocurrencies suffering a free fall over the weekend.

On 20 May, the digital currency market collapsed and recorded its biggest single-day loss. Within 24 hours, Bitcoin fell by 30 per cent while Ethereum crashed 44 per cent. The market recovered slightly on Monday morning as Ethereum was trading 11.3 per cent higher to reach the $2,277 mark. Bitcoin was trading up 2.4 per cent at $36,433 on Monday in London.

Despite the volatility seen in cryptocurrencies, the investment bank’s note to its clients discussed whether crypto could be categorised as a new asset class. Though the bank does not have big exposure in the space, it made it a point of discussion as cryptos have over a period got increased acceptance from mainstream investors and has generated widespread interest.

Sachs’ global head of digital assets Mathew McDermott said that bitcoin was now being evaluated as an investable asset as clients and investors are treating it as an asset class and to witness the emergence of a new asset class was a rare occurrence.

Also read: “Pied Piper”: the curious case of Elon Musk

However, senior multi-asset strategist at the bank, Christian Mueller-Glissmann said that it was too early to make an estimate of how much value cryptocurrencies added to a balanced portfolio.

Cryptocurrencies have had a volatile run in the last few days. The fall seen by digital currencies across the world comes as talks over crackdown on illegal activities intensify. On Friday, a report released by the government in Hong Kong said that it would be necessary for Chinese regulators to provide license to cryptocurrency exchanges. The new regulations would allow only investors who have portfolios over US$1 million to use the exchanges.

Financial Services and the Treasury Bureau of Hong Kong also said that government bodies would regulate all virtual asset exchanges if they wanted to do business in Hong Kong.

Also read: How did the Latest Crash affect Cryptocurrencies’ YTD Returns?

Specifically indicating bitcoin trading and mining, China’s vice-premier Liu Hu also said that China would severely penalise illegal financial activities. Apart from Liu’s announcement, three other state-backed Chinese organisations had severely criticised cryptocurrencies and alleged that they would have to comply with regulations from government agencies and banks as well.

Another reason that contributed to the free fall seen by digital currencies was a U-turn on the commodity by previous enthusiast Elon Musk. Cryptocurrencies saw a huge rally earlier when Tesla boss Elon Musk was generously praising cryptocurrencies.

However, he soon went back on his praise of digital currencies because of their impact on the environment. Musk calling Dogecoin a hustle had a significant contribution to the crash seen in the cryptocurrency space in May. Musk announced that Tesla would no longer accept Bitcoins for car purchases due to the environmental impact because of its mining.


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