Crypto has become a full-fledged asset class, but prices are still dictated by FOMO and investors face barriers to entry, Goldman Sachs says

Crypto has become a full-fledged asset class, but prices are still dictated by FOMO and investors face barriers to entry, Goldman Sachs says
Bitcoin's value has surged by more than 300% over the past year.Chesnot/Getty Images
  • Crypto prices despite the recent selloff are showing big gains over the past year, and FOMO has been a big driver of the higher moves, says Goldman Sachs.
  • Mandates from corporate boards are among three key issues keeping more institutions from increasing their involvement in the market.
  • Bitcoin liquidity has deepened, with bitcoin dollar spot volume surging to $1.5 billion from $300 million over 12 months through April.

Fear of missing out on potential gains from cryptocurrencies among investors is a force that's propelled prices higher over the past year, said Goldman Sachs, which also identified three key issues that are holding back clients from diving even further into the space.

A selloff throughout this month in the cryptocurrency market has pulled its overall capitalization below $2 trillion. But bitcoin, the most traded cryptocurrency, has still bulked up about 330% from this time in 2020 when it traded in the $29,000 range, and ether, the token of the Ethereum blockchain, has soared by more than 1,000% from around $205.

"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," said Mathew McDermott, global head of digital assets at Goldman Sachs, in a note.

"If you're an asset manager or running a macro fund and your closest rivals are all investing and seeing material returns, your investors will naturally wonder why you are not investing," he said. He added that its clients and others are largely treating bitcoin as a new asset, the emergence of which is rare to witness.

Liquidity for bitcoin has spiked up over the last year which is a clear indication of institutional demand in the market, the investment bank said, noting that daily bitcoin dollar spot volume jumped to $1.5 billion from about $300 million between April 2020 and the same month this year.


"But even though liquidity has increased, it's still difficult for institutions to gain access to the market, which remains quite fragmented," said McDermott.

He said Goldman Sachs is hearing from clients about three key issues constraining increased involvement in the cryptocurrency market.

1) Mandate limitations

"For corporates, increased involvement often depends on whether their board feels such involvement makes sense given the nature of the company and its objectives. And some investment funds and asset managers don't have the authority to invest a portion of their portfolios in crypto," he said.

2) Ease of access


"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?," he said.

3) Philosophical motivation

Clients are asking whether having exposure to crypto is the right thing to do and if it makes sense for their portfolios, balance sheets, and other financial metrics. "But as evidenced by the increased inflows, more and more entities are becoming comfortable with having some exposure to the crypto space," he said.