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Goldman Sachs now considers Bitcoin (BTC) as a new asset class. The banking giant also revealed that fear of missing out on the potential gains from crypto has driven institutions to invest in digital assets, adding that price volatility won’t like affect institutional interest in the asset class.
“There’s no doubt that fear of missing out (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,” Goldman Sachs’ global head of digital assets Mathew McDermott said in a note to clients. “If you're an asset manager or running a macro fund and your closest rivals are all investing and seeing material returns, your investors will naturally wonder why you are not investing.”
While cryptocurrencies have been highly volatile these past couple of weeks, he is not concerned that the price volatility would diminish investors’ interest in digital assets. “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,” McDermott explained.
Goldman Sachs clients have increasingly become more active in the crypto space this year compared to last year where clients were just exploring rather than executing. A survey conducted by the bank’s Digital Asset team in March revealed that 40 percent have exposure to crypto with 61 percent among them planning to increase their digital assets holdings in the next 12 months.
McDermott also identified three key constraints that are hindering institutions’ increased involvement in the space. These are mandate limitations, ease of access, and the hesitation on whether having crypto exposure is the right thing to do.
“For corporates, increased involvement often depends on whether their board feels such involvement makes sense given the nature of the company and its objectives,” he expounded on the issue of mandate limitations. “And some investment funds and asset managers don’t have the authority to invest a portion of their portfolios in crypto.”
Regulation is a major concern among Goldman Sachs’ clients. “A key concern is inconsistent regulatory actions around the globe that impede the further development of the crypto space, or the ability of more regulated entities to engage within it,” McDermott said. “It feels like the regulatory tone has turned more constructive, but I certainly wouldn’t want to be complacent.”
