Goldman Sachs released a global macro-economic outlook report back in May 2020, that touched lightly on cryptocurrencies. The report made it clear that the investment firm had little regard for Bitcoin and other cryptocurrencies as an asset class and even tried to spread FUD. It stated that cryptocurrencies were commonly used in Ponzi schemes, money laundering, ransomware, and facilitating dark market deals. These concerns are problems that the fiat currency market has been battling with for a long time anyway.

However, Goldman Sachs’ latest 2021 report indicates a dramatic shift in perspective in favor of cryptocurrencies.

Goldman Sachs’ about-turn was largely influenced by its former partner, Mike Novogratz, the current head of Galaxy Digital. He has been investing heavily in cryptocurrencies like Bitcoin based on the expectation that a continued macro trend will encourage more institutional investors to participate. GS strategist Zach Pandl also subscribes to Novogratz’s market outlook. Pandl believes that Bitcoin’s characteristics, such as its transferability, security, privacy, strong brand, and increased social adoption, are good macro characteristics that support its digital gold status.

Jeff Currie, another Goldman Sachs analyst believes that cryptocurrencies need more use cases other than speculation to make them an effective store of value. The problem with speculation is that it causes dramatic price swings that are not ideal for an asset class used as a store of value. Currie believes that Ether (ETH) is another ideal cryptocurrency for investors considering its Ethereum network facilitates utility through support for decentralized apps and smart contracts. On the other hand, Bitcoin is already easily transferable and highly liquid, while its scarcity makes it more valuable. 

The recent Goldman Sachs report is an interesting departure from the investment firm’s opinion about cryptocurrencies in the previous year and that is a significant change especially for investors. The upbeat opinion about digital currencies means institutional investors are warming up to Bitcoin and other cryptocurrencies, which highlights a high likelihood of more institutional participation moving forward.

Unfortunately, institutional involvement remains limited at the moment, due to regulatory limitations. The U.S government’s latest efforts to establish a better regulatory framework especially for tax purposes and preventing money laundering. Analysts have been contemplating what it means for institutional investors to be involved with cryptocurrencies. It is speculated that the latest fluctuations in cryptocurrency prices were largely influenced by whale activity rather than institutional activity.

An influx of institutional investors will likely take place in the near future, especially now that Goldman Sachs and other investment firms have shifted their perspective of crypto. But how will they affect the market? Tesla and other institutional buyers may provide some insights into how things might play out if more institutional investors are involved. There will be a higher demand for cryptocurrencies, thus prices will go up, encouraging more retail traders to participate.

Market forces will still play out, which means there will plenty of buying and selling. However, there is the general notion that the market will become less volatile due to more players being involved, but that remains to be seen. Institutional investors might be interested in Bitcoin and other cryptocurrencies as a hedge against inflation. This special use case may favor better cryptocurrency prices and is one of the reasons that some institutional investors are already holding cryptocurrency portfolios.

In summary, traditional investment and finance institutions are adopting cryptocurrencies. Some companies now embrace payments in some cryptocurrencies, which means the market has grown in terms of adoption. If the latest Goldman Sachs report is anything to go by, it reveals how institutional investors are looking at Bitcoin as the “digital gold” and Ethereum as the “digital silver”.