The cryptocurrency ecosystem has responded swiftly and strongly to the public remarks made by experts in the traditional financial world who hold skeptical views on cryptocurrencies and have limited information. We believe that these experts should have a deeper understanding of cryptocurrencies. This reaction has been particularly evident in recent days, especially after comments made by Sharmin Mossavar-Rahmani, Chief Investment Officer of Goldman Sachs Asset Management and Wealth Management, in an interview with The Wall Street Journal.
I will not criticize her remarks here. In fact, I intend to defend her remarks. I must clarify that I disagree with most of her views – but at the same time, I also believe that understanding different perspectives can make us stronger advocates for cryptocurrencies. It can also reduce unnecessary anxiety and be beneficial to our mental health. Moreover, it is an interesting intellectual challenge.
Let’s start the discussion from a broader perspective and with some background information.
First, Mossavar-Rahmani has an impressive investment background, including 31 years of experience at Goldman Sachs, which is no easy feat, and she has earned a lot of respect as a result. Second, her views do not represent the entire Goldman Sachs group. She is the head of the asset management and wealth management division, which is separate from the sales and trading and investment banking businesses, both of which are involved in the cryptocurrency ecosystem. Third, some cryptocurrency media outlets are widely publicizing that Goldman Sachs is “under pressure” or “being criticized” due to Mossavar-Rahmani’s remarks. I highly doubt that Goldman Sachs cares about the anger in the cryptocurrency industry, and its wealth management clients can find opportunities elsewhere if they want to get involved in cryptocurrencies.
However, due to her influence among investment managers, especially those looking for excuses not to understand digital assets, her comments in The Wall Street Journal interview are worth discussing:
1) “We don’t think it’s an asset class.”
As I emphasized earlier, “we” here refers to the asset management division, not the entire Goldman Sachs group.
It is easy for people to dismiss her limited understanding of digital assets because digital assets are clearly an “asset class” as they are traded in active markets and people invest in them. However, it turns out that the official definition of this term may be different. ChatGPT defines it as “a group of financial instruments that have similar financial characteristics, are subject to the same laws and regulations, and are typically traded on the same financial markets.”
What Mossavar-Rahmani may want to express here is that there is currently a lack of regulatory standards for cryptocurrencies. Additionally, the idea that cryptocurrencies have “similar financial characteristics” is a bit far-fetched. Stablecoins are very different from Bitcoin, and Bitcoin is very different from AVAX, BONK, and many other digital assets.
We should remember that she may be discussing category characteristics rather than whether cryptocurrencies are worth investing in.
2) “If you can’t determine a valuation, how can you be bullish or bearish?”
For supporters of cryptocurrencies, a common consensus is that expecting the future price of an asset to rise or fall does not require the asset to have intrinsic value. We also know that valuing cryptocurrencies is extremely complex, and due to the numerous factors involved, I won’t go into detail here. But it is undeniable that the cryptocurrency market also experiences bull and bear cycles. Therefore, it is clearly inappropriate to exclude cryptocurrencies from the category of investment assets.
Now, let’s try to consider the issue from Mossavar-Rahmani’s perspective. She is responsible for managing an investment advisory division, which faces strict scrutiny and bureaucracy. Working at a highly competitive company for 31 years, she is not relying on taking on unexplainable risks to maintain her position. Traditional investment advisors need to explain their decision logic to clients, they must “show their work” as a basis for recourse in case of investment mistakes. If her team cannot determine a model-based reasonable valuation for Bitcoin (BTC), then they cannot provide buy or sell recommendations.
Most of us do not have the same restrictions as Goldman Sachs. For me, “price increase” is sufficient, I have a target number in mind, and when it reaches that number, I may make a profit based on “intuition.” I have also encountered other investment advisors who propose target prices, but these target prices are not based on any validated evaluation method.
What I want to express is that Goldman Sachs has many very smart investment analysts who are fully capable of building a reasonable valuation model. Other large companies have done so as well, even though opinions are not completely unified, the key is the reasoning process. I believe we have reason to have higher expectations for Goldman Sachs. The lack of an “official” model seems somewhat lazy.
However, Mossavar-Rahmani’s responsibility is to ensure the safety of investments. In this context, her comments are not excessive.
3) “Cryptocurrencies don’t create any form of value.”
Indeed, this point is difficult to defend. Cryptocurrencies offer numerous services and use cases, and they have real value. Even if we only discuss Bitcoin (BTC), it is clearly of significant value to those facing currency devaluation or limited access to funds.
However, the word “value” can be easily misunderstood, even among professionals in the investment field. We often associate this concept with utility, potential for appreciation, satisfaction, a sense of belonging, and a range of other pleasant benefits. Art has “value,” flowers and friendship also have “value.”
But Mossavar-Rahmani may be referring to the “allocation value” we discussed earlier. Her point may be that without a recognized model to provide a specific number, it cannot be determined as having value.
I must admit that I cannot find a reasonable explanation for this viewpoint. It seems to reflect her limited understanding of cryptocurrencies, which I can only attribute to a lack of in-depth research, as no one would question her intelligence. Although I tried to find reason in this viewpoint, it is difficult to justify.
4) “The ultimate decision-making power rests in the hands of a few.”
On this issue, her viewpoint is basically reasonable. I would suggest adding some qualifiers in the wording, such as using “may eventually be in the hands of a few key decisions” or “may eventually be in the hands of certain networks.” Nevertheless, I agree that the term “decentralization” is often misused.
At the same time, it is worth noting that “decentralization” is not an absolute yes-or-no condition. It exists in varying degrees. In fact, many networks are striving to gradually increase their level of decentralization, as they promise to do so.
5) “At least, you can physically own gold and store it securely, while cryptocurrencies cannot provide such a physical holding method.”
Goldman Sachs has long had a less positive attitude towards gold. One view is that this is because the investment banking division cannot generate returns by issuing gold, but can earn substantial returns by helping companies issue stocks and bonds. Although I don’t believe in this view, it is indeed rare to see a large investment management company ignore such an important asset.
Perhaps this is because gold itself does not generate any direct “value”? Gold has neither cash flow nor dividends. Since it does not have a specific “value,” how do investment advisors have bullish or bearish views on holding it? Can gold really “create” value? Obviously not.
This statement reflects the doubts of many people. It reveals Mossavar-Rahmani’s understanding of the concept of “value,” that value needs to be created. To her, value seems to have to have a tangible output.
This also exposes her limited understanding of how cryptocurrencies work. In reality, many assets can indeed generate tangible outputs. I would like to point out that this comment also indicates her shallow understanding of gold investments, as few institutions or high net worth gold investors actually physically hold their gold bars.
However, taking a step back, the significance of this work is to show that not all cryptocurrency critics are wrong. It is beneficial for us to understand the barriers to acceptance of cryptocurrencies. Recognizing the existence of conflicting views in the market, which ultimately do not matter in the long run, is also very valuable.
More importantly, think about those people we know who initially refused to accept the concept of cryptocurrencies, and we will feel satisfied. They are all smart and well-educated financial professionals, but they ultimately decided to invest time and effort to better understand what we care about – and they eventually changed their views.
Perhaps one day, Mossavar-Rahmani will change her perspective as well. Even if she doesn’t, it doesn’t really matter. If we can expect those friends who were initially skeptical to accept our views with an open mind, then we should also strive to face those who criticize us with the same mindset. At least, doing so can help us clarify where we should focus our efforts when explaining and promoting our views.
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Original article link: https://www.bitpush.news/articles/6571613
Tags:
AVAX
Bonk
Sharmin Mossavar-Rahmani
Value investment
Cryptocurrency
Blockchain
Decentralization
Digital assets
Bitcoin
Gold
Source link:
https://www.coindesk.com/consensus-magazine/2024/04/03/defending-goldman-sachs…
Note: All articles from Bitpush represent the author’s views and do not constitute investment advice.
Original article link: https://www.bitpush.news/articles/6571613
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