Strategy
Wall Street Bank Weighing Crypto-Trading Unit Says Gold Beats Bitcoin

Bitcoin has been dubbed "digital gold" because of its finite supply and price swings on the back of geopolitical events.
Although Goldman
Sachs is reportedly weighing a new unit dedicated to trading
crypto-currencies, bitcoin is not the new gold, the bank has
said, suggesting that precious metals “remain a relevant asset
class” in portfolios.
In a note to its clients sent earlier this week, the Wall Street
giant penned the benefits of holding gold in a portfolio.
“The use of precious metals is not a historical accident – they
are still the best long-term store of value out of the known
elements," the bank said. "Crypto-currencies are not the 'new
gold' despite their recent popularity.”
The note was sent just weeks after news emerged that Goldman
Sachs was contemplating
setting up a new trading operation dedicated to
crypto-currencies, undoubtedly the most controversial “asset
class” at present. The bank is considered the first blue-chip
Wall Street firm readying itself to deal directly in the growing
but volatile market.
“In response to client interest in digital currencies, we are
exploring how best to serve them in the space,” Tiffany Galvin, a
US-based spokesperson for Goldman Sachs, told this publication at
the time.
Bitcoin was conceived in 2008 in the aftermath of the financial
crisis and launched the following year. It is effectively a
decentralised, online-only currency that uses a technology called
blockchain to enable users to circumvent banks' services and
transfer holdings without any interference from a bank or
third-party institution.
In its note Goldman Sachs did, however, address the rising
popularity of crypto-currencies, several of which have seen their
market value balloon since the start of the year. Many
commentators have dubbed bitcoin “digital gold” because its
supply is finite (limited to 21,000,000) and has at times
seen price fluctuations due to geopolitical tensions and on the
back of comments from industry figureheads.
Nonetheless, “gold wins out over crypto-currencies in a majority
of the key characteristics,” Goldman Sachs said.
The bank also pointed out that digital wallets, which allow users
of crypto-currencies to store their holdings online, are
vulnerable to breaches, and noted that that hundreds of millions
of dollars' worth of digital coins have been lost to hackers over
the past eight years.
There are also “significant regulatory risks” linked to
crypto-currencies. For example, China last month ordered all
domestic crypto-exchanges to shut shop and put an end to initial
coin offerings (ICOs), a new fundraising method used by
blockchain start-ups to grow their business.
Yet other economies have embraced bitcoin: in Japan, it is
considered a legal form of payment; in Switzerland, some cities
and towns allow their citizens to pay some of their tax bills in
bitcoin.
Goldman Sachs acknowledged that bitcoin is more easily divisible
than gold, as each coin can be broken into 100 million pieces,
whereas gold is often traded in bars weighing at least
1kg.
Although bitcoin can be fragmented with great ease, it faces
stiff competition from so-called alternative coins. Bitcoin has
rival crypto-currencies, such as Ethereum and Ripple, and there
are over 1,000 in existence. Gold, on the other hand, has far
fewer rivals.
Goldman said that gold "is clearly better at holding its
purchasing power, and has much lower daily volatility." The note
said that bitcoin's volatility averaged almost seven times that
of gold in 2017.
Bitcoin was up 2.92 per cent at the time of writing (14:59,
19/10/2017), trading at $5,734.77 per coin, according to
CoinDesk.