Here’s Everything Goldman Said About Bitcoin In ‘Tulip Mania’ Slides

"We have compared bitcoin and ether... to the Gouda variety of tulip bulbs".

New readers often ask why I don’t talk much about Bitcoin, but long-time visitors are apprised that I actually did cover digital tulips quite extensively during the height of the mania.

That coverage was begrudging.

To be clear, you will find no one happier than yours truly at the prospect of others prospering monetarily, as long as that prosperity doesn’t stem from the dissemination of propaganda. Just about the only kind of profiteering I’m against is that which involves the monetization of misinformation, as that’s deleterious to people’s mental well-being, something I find wholly distasteful.

The point: very much unlike many (I would even venture to say “most”) Bitcoin critics, my disdain for cryptocurrencies is in no part attributable to some bizarre desire to see those who dabble in the space fail. In fact, my disdain for cryptocurrencies isn’t properly “disdain”, as it’s confined to these digital pages. Outside of my daily macro musings, I would speak of Bitcoin the same way I would speak of anything else I have no interest in – that is, in dismissive terms, but not derisive terms.

The reason I strike a derisive tone in these pages is very simple: Bitcoin is not an asset, and therefore has no place in any discussion of assets or asset prices, something Goldman drove home in a Wednesday presentation stamped for the consumer and investment management division.

The portion dedicated to crypto apparently irritated Bitcoin adherents (a bunch who are easily riled anyway), despite comprising just six of nearly 50 slides. Because the story is grabbing a few headlines, I figured it was worth fishing this thing out and hitting the high points.

It’s somewhat odd that this caused a stir, given that Goldman doesn’t say anything everyone else hasn’t already said. They begin with three simple observations about the nature of sovereign currencies. To wit:

  1. They are used as a medium of exchange. – To represent a medium of exchange, an instrument must facilitate the transaction of goods or services between parties (e.g., US$ are used to buy a barrel of oil).
  2. They serve as unit of account. – A unit of account is a measurement which allows value to be accounted and compared (e.g., a barrel of oil is worth ~$33).
  3. They are a store of value. – A store of value is an asset that can be saved, stored, and exchanged in the future for a predictable stable value (e.g., with 2% annual inflation, a nominal dollar today will be worth 82¢ in 10 years).

While you may be able to argue the case for the first two points, you cannot really do so for the third. No sane person would suggest they can predict what Bitcoin will do next week, let alone next year.

The case for Bitcoin as an asset class is clear – and by that, I mean there isn’t one. I’ve been over this before, and so have plenty of other people smarter than myself. Here, from Goldman, is the long and the short of it:

Cryptocurrencies Including Bitcoin Are Not an Asset Class

  • Do Not Generate Cash Flow Like Bonds
  • Do Not Generate any Earnings Through Exposure to Global Economic Growth
  • Do Not Provide Consistent Diversification Benefits Given Their Unstable Correlations
  • Do Not Dampen Volatility Given Historical Volatility of 76% – On March 12, 2020, the price of Bitcoin fell 37% in one day
  • Do Not Show Evidence of Hedging Inflation

With apologies to the Bitcoin crowd (and I mean that sincerely, because I do think cryptocurrencies serve a purpose, just not this one), there isn’t much that’s debatable about those bullet points. As noted here at the outset, cryptocurrencies aren’t an asset class. Period. And discussing them in that context does a disservice both to investors and, I contend, to those who hold Bitcoin for reasons that make sense. (Basically, for any reason that doesn’t involve including it has part of an investment strategy.)

“We believe that a security whose appreciation is primarily dependent on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients”, Goldman says, conjuring the greater fool theory and adding that “while hedge funds may find trading cryptocurrencies appealing because of their high volatility, that allure does not constitute a viable investment rationale”.


Next, the bank summarily dismisses the notion that Bitcoin, like gold, deserves a scarcity premium.

“Since Bitcoin was created in 2008, several thousand cryptocurrencies have come into existence, with a combined market cap of ~$250 billion”, the bank says. “Though individual cryptocurrencies have limited supplies, cryptocurrencies as a whole are not a scarce resource”.

I would add that all kinds of things constitute “scarce resources”, and they are not considered valuable, let alone a reliable inflation hedge. And speaking of that, I’m not a big fan of gold for the same reasons – it has value because humans have decided it does, but if our memories were all wiped clean tomorrow, we might collectively decide that some other metal (or commodity) for which there is a finite supply is desirable instead.

In any case, what really seems to have irritated the crypto crowd is the following slide which contains the infamous tulip bubble comparison.


“Cryptocurrencies moved beyond bubble levels in financial markets and even beyond levels seen during the Dutch ‘tulipmania’ between 1634 and early 1637”, Goldman points out, before noting that when you compare crypto bubbles to other historical manias… well, there really is no comparison.

“We have compared bitcoin and ether, two of the largest cryptocurrencies by market capitalization, to the Gouda variety of tulip bulbs and to the equity bubbles in the Nasdaq, S&P 500 and the TOPIX”, the bank says. They use the year prior to their respective peaks. The figure is a simpler version of the second and third charts from the triptych above.

As if all of that wasn’t enough to make the point, Goldman reminds anyone who needs reminding (which should be nobody, but alas) that the cryptocurrency infrastructure is “still young and susceptible to hacking or inadvertent loss”.

The bank even provides a handy timeline in that regard.


And that, folks, is what prompted “Bitcoiners” to “go wild”, as Bloomberg puts it.

One popular crypto proponent spoke for the whole community. “Long Bitcoin, Short the Bankers!”, he shrieked, in a silly tweet referencing Goldman’s straightforward presentation which, again, is the furthest thing from inflammatory and touches only briefly on Bitcoin.

I’m not even sure what “Short the Bankers!” means, but if you’re inclined to be long Bitcoin, go for it. And best of luck. But please, don’t tell me about it. As Jamie Dimon put it in October of 2018, “I didn’t want to be the spokesman against Bitcoin. I don’t really give a sh*t — that’s the point, OK?”



18 comments on “Here’s Everything Goldman Said About Bitcoin In ‘Tulip Mania’ Slides

  1. Goldfinga'

    At least you can plant tulip bulbs

  2. Long the Fed! Short the wankers!…seems like a more appropriate reaction to Goldman’s presentation

  3. Long term, all you need to know about Bitcoin, and all crypto currencies, is that all sovereign governments/currencies might allow a small annoyance, such as bitcoin, but never, ever a competing currency.

  4. The optionality of Bitcoin is incredible. Maybe it goes to zero. If it doesn’t, maybe it goes to $100k or higher.
    BTC is tiny at $200B. Equity and credit is a $276T market. Gold market is $9T. Bitcoin is a call option on the future. The book the “Bitcoin Standard” is beautiful. Read this book or the white paper before making judgements about Bitcoin.

  5. Logical, convincing and hilarious – a winner!

  6. H, your position has indeed remained consistent all this time. The silence has been deafening. And I understand you don’t want to debate anything, so the following may be construed solely as a dissenting viewpoint – I don’t feel the need to debate anything either.
    However, and with all due respect, is anyone seriously taking the words of GS at face value? I accept that they’d like their clients not to purchase Bitcoin or any other cryptocurrency and that they will not be doing so on anyone’s behalf, but to this outsider’s ears this reads like nonsense.
    In these times, exactly which asset is a predictably stable store of value?
    People transact in Bitcoin all the time. You don’t like some of the things they’re buying and selling with it? I can assure you any product purchased with BItcoin is also purchased in any and every other currency – fiat and otherwise, available to people in the world.
    The price of Bitcoin fell 37% in one day? Never mind that its since recovered to pre March 12 prices, but are they warning anyone about the rather insane volatility of ‘acceptable’ asset classes both before and immediately after the aforementioned date?
    Does not show evidence of hedging inflation? Tell that to holders from 2013.
    Sorry, but for anyone that takes seriously the idea that the ‘civilized world’ appears to be on a crash course with some as yet undefined oblivion – the trend is your friend til the end! few assets (yes, I said it), if any, appear as well positioned to be of major importance in the new normal.
    Yes, some of the nascent infrastructure that has popped up around it has been hacked — Chase and everyone else in the world is immune??? but to my knowledge, no actual BTC has ever been hacked. The ledger remains unchanged and immutable. The amount to be supplied is so far as advertised. And it can still be transferred via digital connection to anyone anywhere in the world with no interference from banks or governments. What other medium of exchange (it is indeed a demonstrable medium of exchange) can boast those capabilities.
    Why are any of you still pretending that Jamie Dimon or GS or the US Government, most especially under the current administration, have our best interests at heart or are telling the truth about anything?
    The dystopia is here y’all. Its still working out how exactly it will truly F^&* us all but the writing is on the wall. The specific use case for bitcoin is alive and well and somewhat predictably gets stronger everyday.
    A lot of very thoughtful people seem to congregate here to read the missives of the very thoughtful moderator. I still find it somewhat alarming/amusing that so few here, including said moderator, see the benefit in what Bitcoin has to offer.

    • — “I accept that they’d like their clients not to purchase Bitcoin or any other cryptocurrency and that they will not be doing so on anyone’s behalf”

      This demonstrates beyond a shadow of a doubt that you have never been an actual client of a Wall Street bank. If there’s money to be made in it, they will be more than happy to buy it on your behalf. And I mean more than happy. Let me reiterate in case that’s not clear: If you have enough money, Wall Street will structure whatever the hell you want them to structure for you. If you call up with a billion and want Goldman to structure a bespoke deal for you involving swaps on cast iron skillets and beaver pelts, by God, they will do it. If, on the other hand, you have, say, $5 million, they will hang up on you.

      — “…to this outsider’s ears this reads like nonsense.”

      What exactly is “nonsense”? You haven’t disputed any of the points on the merits. You’ve just trotted out a long-winded screed that posits a conspiracy involving the US government and Jamie Dimon, which makes you a lot like any other person who frequents Reddit threads on Bitcoin.

      — “…but are they warning anyone about the rather insane volatility of ‘acceptable’ asset classes?”

      Yes. Do you get notes from Goldman’s derivatives strategists? If not, then how do you know what they are and aren’t warning clients about in terms of cross-asset volatility?

      — “…The price of Bitcoin fell 37% in one day?”

      Find me another asset that has fallen 37% in a single day this year.

      — “People transact in Bitcoin all the time”

      What is the percentage of merchants in the United States (so, all merchants from large, to medium, to small) that accept Bitcoin? I don’t know what that number is. But do you know what number I do know? Let me tell you: I know the percentage of merchants operating in the United States that accept either USD cash, debit cards, or credit cards. Do you know what that percentage is? It’s 100%. Unless you’re bartering at a farmer’s market.

      — “The dystopia is here y’all”

      And you want to own something that requires computers and electricity in an apocalypse? When we’re all hunting deer and boiling creek water to survive, how many people do you think are going to want the make-believe digital tokens you’ve got stored on the thumb drive in your pocket? At least you can burn paper money for warmth.

      — “I still find it somewhat alarming/amusing…”

      You’re going to be “alarmed/amused” every day for all eternity.

      • “Find me another asset that has fallen 37% in a single day this year”. Try looking at crude oil futures.

        • I wrote something on the order of twenty-three thousand, four hundred words over a dozen posts on crude that week.

          I’d be willing to bet you read every one of them, or at least most of them, considering you’re a long-time reader.

          Oil’s recent trials and tribulations clearly don’t apply to this discussion for a laundry list of reasons that I certainly hope are obvious to you.

  7. Ok.
    It’s true that I’ve never been the client of a Wall Street bank, nor have i made assertions to the contrary, but I’ve been in business in NY long enough to know plenty who have and I don’t dispute this point. Setting aside bespoke banking services, there’s this: and that’s not consistent with the words of that bank’s CEO regarding the position of that bank on the subject. Just one small case in point.

    I haven’t posited any conspiracy by Dimon and the government. I have stated, because the evidence is substantial, that these entities lie publicly and don’t serve the interests of the people they govern or serve. Furthermore I addressed many of those points with counterpoints, some of which you went on to rebut.

    No, I don’t get notes from derivative strategists… but you do, and so do others who offer information and commentary on said notes, so while I can’t claim to be inside the loop, I’m not entirely outside of it either.

    Yes, of course they’re warning their clients about volatility, yet that doesn’t seem to stop them or their clients from playing the game. As you’ve written about exhaustively, there’s little choice in the matter for investors.

    I don’t believe our dystopia is by necessity or some fundamental law going to be absent electricity or digital networks or computers. I’d point to the current state of affairs as proof of that. If people want to bathe in creeks and kill deer for food, that will probably continue to be a choice and not a need for most in the developed world.

    100% of merchants transact in USD because its easy and the tradition. More merchants accept BTC today than ever before. Thanks to the efforts of many, Jack Dorsey included, that trend is up. Friend til the end.

    I actually am going to be alarmed/amused every day I suspect. I’m a sentient being. I suspect you experience alarm and amusement on a daily basis as well.

    I actually think all you’ve done here is attack my character without knowing the first thing about me and that it is you who has not delivered much based on the merits.

    That said, I still enjoy this site and your writing and consider it a value.

    • dystopia may be a place that would negate bitcoin altogether. there are no dystopia rules yet.
      Your character did not appear attacked. Be dispassionate about critique, you made it personal, like the tulip lovers of Holland or any pyramid scheme people who believe they got in early. Pyramid schemes are what I liken it to.
      As much as people knock fiat currency, it is actually backed by public land, infrastructure, military equipment and so much more. Cripto is based on what exactly, trust? Sorry but all cons are based on trust, till they are not.

      • Actually, crypto is based on a lack of trust, hence the ubiquitous ‘trustless’ descriptor of the tech. I don’t need to trust you or you me, because we have come to an agreement on a value and that is all that’s necessary to make the exchange.
        See public land is public and therefore shouldn’t be for sale and therefore probably shouldn’t be on the balance sheet, but silly me, I’m so literal.

    • “100% of merchants transact in USD”.

      The. End.

      • static thinking unfortunately does not breed stasis.

      • On another note, I want to point out to readers that getting a snarky response from me is not tantamount to a personal attack. If you leave a snarky comment (even one that includes compliments) it is possible you will receive a snarky reply. That’s how life works. Unlike some other pseudonymous writers, I do not pretend to be a content robot. This site is a labor of love. There is a real person on the other side of the glasses and hat. I would hope that is comforting for readers. I’m here to engage and I’m proud of the site. So, yes, I will respond occasionally, especially when readers contend that something I have said (or chosen to quote or otherwise posted) “reads like nonsense”, etc. If I thought it was “nonsense” I wouldn’t have posted it. Clearly, readers are free to say it’s nonsense, but for the benefit of everyone else, I’m going to explain why it’s not.

Comments are closed.

Skip to toolbar