22 JUN 2021

Digital Assets: Beauty Is Not in the Eye of the Beholder

Investment Strategy Group
Goldman Sachs Private Wealth Management
June 2021

The world of cryptocurrencies and blockchain technology has grown exponentially and become increasingly complex since we first wrote about it in 2017. The growth of this digital asset ecosystem; the rapid price appreciation of cryptocurrencies; the media (and Twitter) blitz on bitcoin, ether, and even dogecoin; and the diametrically opposing views of high-profile investors have confounded many of our clients. The most important question on their minds with respect to the digital asset ecosystem is whether cryptocurrencies form a legitimate asset class and therefore play a role in their investment portfolio.

The purpose of this report is to provide a thorough, balanced and objective examination of the digital asset ecosystem for our clients. Such an undertaking was not easy. The technology underlying blockchains is revolutionary, complex and rapidly evolving. The industry uses new jargon. There is a significant amount of misinformation and disinformation. The digital asset ecosystem is nascent; Bitcoin, the first cryptocurrency, was launched in 2009. Finally, the role of cryptocurrencies is often conflated with the role of blockchain technology, making it difficult to separate the noise from true signals; the noise drowns out the important question of how blockchain technology contributes to economic growth and value creation.

We begin the report with a brief review of the origins and original purpose of Bitcoin and the Bitcoin blockchain. We explain the initial technology and follow with a review of subsequent technological innovations and cryptocurrencies. We also present our views on the impact of this digital asset ecosystem on various businesses. We then focus on the role—or, in our view, the lack thereof—of cryptocurrencies as an asset class in a diversified portfolio. We discuss the basic requirements of an asset class and examine the extent to which cryptocurrencies meet (or do not meet) those requirements. We conclude with the risks to the cryptocurrency and blockchain ecosystem.

We invite you to read our views in Digital Assets: Beauty Is Not in the Eye of the Beholder.

Investment Strategy Group

Digital Assets: Beauty Is Not in the Eye of the Beholder

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