Swissquote defends cryptocurrency against Goldman Sachs

In a recent outlook report, the American multinational investment bank Goldman Sachs distanced themselves and condemned Bitcoin and cryptocurrency in general. Chris Thomas, Head of Digital Assets at the online bank Swissquote responded last week.

In its outlook report from 27 May 2020, the Goldman Sachs Consumer and Investment Management Division portrayed cryptocurrencies in a negative light. Swissquote took a stand against this view as being one-sided.

To the claim of Goldman Sachs that cryptocurrencies are not an asset class, the head of the digital assets at Swissquote responded that the emerging assets are now being formed and are suitable for most institutional participants. Thomas noted that the technology is at its early stages, however there is enough good crypto to create a segment of a diversified portfolio.

Cryptocurrencies have a historical volatility of 76%, however this occurrence is natural for an emerging market and investors should never invest a large part of their portfolio into crypto.

On 12 March 2020, the price of bitcoin fell 37% in just one day. However, a month later, oil markets plunged bellow zero for a first time in history, reaching as low as a minus $40 per barrel due to the coronavirus crisis.

The fall of bitcoin happened due to lack of liquidity in the traditional financial market. Bitcoin’s price discovery happened in a natural way and reflected the true market supply and demand. Bitcoin market does not have a centralized limit to prevent big moves like that but traditional markets do and they cannot be influenced to protect investors. On 11, going into 12 March 2020, the S&P fell gradually over 12%.

In their cryptocurrency outlook, Goldman Sachs stated:

We believe that a security whose appreciation is primarily defendant on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients.

Chris Thomas responded:

Surely this is the basis for all investment decisions?

Thomas supported the idea that the decision to buy/sell comes down to belief whether the price will go higher/lower and whether someone else is willing to pay high/lower price.

Swissquote agrees with Goldman Sachs that crypto has been used in Ponzi schemes, money laundering and other dark market functions but fiat currencies can also be used for illicit activities.

Chris Thomas commented:

Chris Thomas, Swissquote

Chris Thomas

Banks and enterprises like Swissquote Bank operate to strict AML regulatory levels in both fiat and crypto worlds to prevent such illicit activities. Chainalysis concluded in January 2020 report that only 0.08% of crypto transactions originate from the darkest markets and collectively criminal activity represented just 1.1% of total activity.

Goldman Sachs also stated:

The cryptocurrency infrastructure is still young and susceptible to hacking or inadvertent loss.

Chris Thomas responded:

The crypto-asset infrastructure is still young and many of the companies Goldman Sachs mentioned in the outlook only have a few years’ experience and may have lacked the solid operational security processes.

Companies like Swissquote Bank – a fully regulated Swiss bank with strong operational and security processes – do not have such infrastructure security challenges and are able to serve both retail and institutional clients in a compliant way, in both the traditional and the crypto-asset worlds.

In its outlook, the Swissquote bank notes that investors can chose established financial entities for their transactions instead of exchanges who may not have such a strong regulatory compliance in their processes. The Swiss bank states that the crypto infrastructure in active financial services participants is strong enough for institutional investors to make the same transactions as they would with any other asset class. Fidelity Investments have built Fidelity Digital Asset Services and JP Morgan have the confidence to offer banking services to the two largest crypto exchanges.

Thomas admits that private keys are still challenging for everyone and it is why it is safer for investors to use regulated trading services like Swissquote Bank.

Swissquote Bank has taken steps to support crypto-assets and has expressed its belief that they form the future of financial markets. With the maturing of crypto, the crypto market will become more stable and more accessible for a larger use.

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