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Despite Volatility, Bitcoin is an Investable Asset Class, says Goldman Sachs

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Bitcoin is now considered an investable asset, according to a new Goldman Sachs research report, even though it has its own idiosyncratic risk, in part because it’s relatively new and going through an adoption phase.

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The new report says that with cryptocurrency prices remaining extremely volatile, particularly on news about regulatory crackdowns, environmental concerns and heightened tax scrutiny, interest in crypto assets from credible investors has been rising and legacy financial institutions — including Goldman Sachs — have been launching new offerings, “crypto is undoubtedly Top of Mind.”

What makes a crypto like Bitcoin — which has no income, no practical uses and high volatility — a good store of value, is because “the world has voted that they believe” it is, Michael Novogratz, co-founder and CEO, Galaxy Digital commented in the report.

Novogratz adds that the broader crypto ecosystem provides promise for investors particularly around three developments in the crypto ecosystem — payments, decentralized finance (DeFi) and non-fungible tokens (NFTs) — mostly being built on the Ethereum network.

Goldman Sachs says it has re-engaged in the crypto space because of client demand.

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“Bitcoin doesn’t behave as one would intuitively expect relative to other assets given the analogy to digital gold; to date, it’s tended to be more aligned with risk-on assets. But clients and beyond are largely treating it as a new asset class, which is notable–it’s not often that we get to witness the emergence of a new asset class,” Mathew McDermott, GS Global Head of Digital Assets, noted in the report.

He adds that FOMO is playing a role given how much Bitcoin and other crypto assets have appreciated and how many interested parties of all flavors have jumped into this space.

“But I see investor interest in crypto enduring; we’ve crossed the Rubicon in terms of institutional buy-in, and there is much greater value in the space than there was three or four years ago,” he wrote.

In terms of the percentage of clients that Goldman Sachs engages with who are interested in the space versus actually active in the space, McDermott says that last year many clients were exploring rather than executing. From what they see and anecdotally hear, that seems to be changing. According to a survey from Goldman Sachs’ Digital Asset team conducted in early March, of the 280 clients that responded, 40% have exposure in some form to cryptocurrencies, with 61% expecting their holdings to increase over the next 12 months.

Bitcoin has had an extremely volatile couple of weeks, and was standing at $38,000 this morning.

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