Goldman Sachs may be entering the cryptocurrency game in a major way--or at least it seems to be acknowledging the importance of the growing market. In spite of the fact that cryptocurrencies like Bitcoin and Ethereum have made incredible gains so far this year, ballooning the size of the crypto market to $120 billion as the leading currencies have doubled or tripled in value in many cases, major financial firms like Goldman have largely been reluctant to go all in. There are numerous potential reasons for this hesitation, including possible security risks associated with cryptocurrencies and the more general issue of their untested nature over a longer time span. Still, the rapid ascendancy of this new market has prompted analysts at Goldman to now acknowledge that the cryptocurrency market is impossible to ignore.
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The Crypto Space "Warrant[s] Watching"
A recent Goldman Q&A which was written by analysts including Jessica Binder Graham and Robert Boroujerdi and which was sent to clients of the bank indicated that cryptocurrency was becoming impossible to ignore. "Whether or not you believe in the merit of investing in cryptocurrencies (you know who you are), real dollars are at work here and warrant watching," the Q&A said, according to reporting by Bloomberg. Now, it seems that the overall debate about the legitimacy of the industry has given way to a sense of wonder at just how quickly new companies can make incredible sums of fundraising cash through initial coin offerings (ICOs).
Goldman Addresses Nature of Cryptocurrencies and How to Trade Them
The Q&A may have been designed as a type of primer for investors curious about getting involved in the digital currency world. It addressed some important questions about cryptocurrencies, including whether they are a currency or a commodity. On that front, Goldman suggests that digital currencies have some attributes of broader currencies, in that they have been presented and trusted by a medium of exchange, but also some relating to commodities, such as the fact that they are limited in quantity. In fact, different countries and governments classify cryptocurrencies differently. The IRS in the U.S., for example, holds that virtual currencies are not legal tender in any jurisdiction, and that they are rather considered as property.
Goldman also addresses how to trade cryptocurrencies, offering basics on digital exchanges and block trades. The Q&A also walks through some issues relating to Ethereum, particularly the ways in which the Ethereum platform (and not the cryptocurrency, Ether) has been transformational via its smart contracts setup. Finally, Goldman discusses the rise of the ICO and how it works, pointing out that ICOs have accumulated about $1.25 billion so far this year, enough to outpace global angel investing and venture capital funding.