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Driven by a “fear of missing out” (FOMO), institutional investors and asset managers have turned to Bitcoin and other cryptocurrencies, pushing up the prices. This according to Goldman Sachs who now consider Bitcoin a new asset class. Institutional investors however are still facing some strong barriers to enter the crypto space.
In a note to clients on Monday, Mathew McDermott, Goldman Sachs Managing Director Global Head of Digital Assets, said:
“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.”
Although liquidity has recently increased in the crypto market and thereby showing increased maturity and reliability of the market, the Goldman Sachs Head noted that “it’s still difficult for institutions to gain access to the market, which remains quite fragmented.”
McDermott continued:
“If you’re an asset manager or running a macro fund and your closest rivals are all investing [in cryptocurrency] and seeing material returns, your investors will naturally wonder why you are not investing [in the asset class].”
McDermott commented on some of the key issues that Goldman clients experience when it comes to increasing their exposure to Bitcoin or other cryptocurrencies.
To begin with, involvement of company boards can slow things down as McDermott noted:
“For corporates, increased involvement often depends on whether their board feels such involvement makes sense given the nature of the company and its objectives.” Some investment funds and asset managers don’t have the authority to invest a portion of their portfolios in crypto.”
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Other concerns are more of a technical and practical nature:
“How easily can clients gain exposure to the market, is the liquidity sufficient to meet their needs, and are they comfortable enough with the custody and security aspects of managing these assets?”
Lastly, clients are yet unsure how to value the new asset class when it comes to their exposure to it. They still question if cryptocurrency is the right thing to do and whether it makes sense when considering their investment strategies, portfolios, or balance sheets. That being said, McDermott emphasized an increased momentum and the pendulum swinging the ‘right’ way:
“As evidenced by the increased inflows, more and more entities are becoming comfortable with having some exposure to the crypto space.”
Goldman Sachs have proven to be one of the progressive bankers when it comes to cryptocurrency, keeping a close eye to developments while taking very customer centric approach and listening to its clients. Chief Executive Officer, David Solomon not so long ago said that a “big evolution” is coming with regards to regulation of cryptocurrencies in the United States.