Investment bank Goldman Sachs says institutional investors and asset managers are driven to bitcoin by “fear of missing out” (FOMO). Goldman now considers bitcoin a new asset class. Nonetheless, institutional investors are facing several strong barriers to entry into the crypto market.
Goldman Sachs said Monday that the fear of missing out (FOMO) on potential gains from cryptocurrencies among investors has pushed crypto prices higher over the past year. Mathew McDermott, Goldman Sachs’ global head of digital assets, said in a note to clients:
There’s no doubt that ‘fear of missing out’ (FOMO) is playing a role given how much bitcoin and other crypto assets have appreciated and how many interested parties of all flavors have jumped into this space.
While liquidity has increased in the crypto market recently, the analyst said “it’s still difficult for institutions to gain access to the market, which remains quite fragmented.”
If you’re an asset manager or running a macro fund and your closest rivals are all investing [in cryptocurrency] and seeing material returns, your investors will naturally wonder why you are not investing [in the asset class].
McDermott proceeded to share key issues that Goldman clients have raised regarding what’s preventing them from increasing exposure to bitcoin or other cryptocurrencies.
Firstly, McDermott said that “For corporates, increased involvement often depends on whether their board feels such involvement makes sense given the nature of the company and its objectives.” The Goldman analyst pointed out that “Some investment funds and asset managers don’t have the authority to invest a portion of their portfolios in crypto.”
The second barrier concerns “How easily can clients gain exposure to the market, is the liquidity sufficient to meet their needs, and are they comfortable enough with the custody and security aspects of managing these assets?”
In addition, some clients question whether having exposure to cryptocurrencies is the right thing to do and whether it makes sense for their investment strategies, portfolios, or balance sheets, the analyst detailed. Nonetheless, he emphasized:
As evidenced by the increased inflows, more and more entities are becoming comfortable with having some exposure to the crypto space.
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