Goldman Sachs recently released a comprehensive research report discussing the potential of cryptocurrencies to become a mainstream institutional asset class. The report highlights significant shifts in perception, analysis, and adoption of digital assets, with particular emphasis on Bitcoin and Ethereum.
Cryptocurrency: A New Institutional Asset Class
According to the report, Bitcoin is now widely regarded as a configurable asset with unique risk profiles, partly due to its innovative nature and ongoing adoption phase. Mathew McDermott, Goldman Sachs’ Global Head of Digital Assets, noted:
“Due to its similarities to digital gold, Bitcoin’s performance isn’t entirely aligned with intuitive expectations. Thus far, it has correlated more closely with risk-on assets. Many of our clients view it as a new asset class—a rare occurrence in financial markets.”
This marks a notable reversal from the firm’s 2020 stance, when it concluded that cryptocurrencies did not constitute a viable asset class, citing extreme volatility and limited institutional interest.
Since then, the crypto market has experienced a historic bull run, prompting Goldman Sachs to not only revise its position but also begin offering Bitcoin-based investment products to its wealthiest clients.
The report also emphasizes Bitcoin’s rapidly growing adoption rate worldwide, driven by its strong brand and characteristics conducive to value storage—such as privacy, security, and transferability.
A key differentiator highlighted is Bitcoin’s fixed supply, which contrasts with Ethereum’s currently infinite issuance—though the latter is scheduled for a major upgrade aimed at addressing supply concerns.
Regulatory Challenges and Market Volatility
The single biggest challenge to global cryptocurrency adoption, according to the report, is regulatory pressure. McDermott states that further price appreciation faces significant headwinds from official policy and oversight.
Nonetheless, institutional interest remains strong. Clients are increasingly focused on how to gain exposure to cryptocurrencies and deepen their understanding—a shift from several years ago when the most common question was simply, “What is Bitcoin?”
Goldman Sachs recently established a dedicated cryptocurrency trading desk, citing “substantially growing institutional demand.”
The report also notes that while Bitcoin and Ethereum have delivered impressive year-to-date returns, they also exhibit extreme volatility. Bitcoin’s average daily volatility is nearly 80%, and Ethereum’s exceeds 90%—compared to gold’s sub-20% volatility.
A major distinction between the current cycle and previous ones is the participation of institutional investors. However, institutional inflows into crypto ETFs have recently slowed, while altcoin activity has surged, suggesting renewed retail dominance.
This shift from institutional to retail-driven markets increases the likelihood of sharp corrections. High volatility is expected to persist until cryptocurrencies develop real economic utility beyond pure price speculation.
Historically, Bitcoin has shown remarkable resilience. Since 2013, every major drawdown has been followed by a recovery to new all-time highs.
Ethereum’s Potential to Outperform Bitcoin
The 42-page report reveals a distinct preference for Ethereum over Bitcoin in the long term.
Goldman analysts suggest that Ethereum’s native support for smart contracts could eventually help it overtake Bitcoin as the leading public blockchain. According to the report:
“The most valuable crypto assets will be those that help verify the most critical information in the economy.”
As more users bring their data onto the blockchain—including medical records, financial data, asset ownership, and intellectual property—privacy concerns may diminish through technological and regulatory solutions.
The report further argues that “Ethereum has a high likelihood of surpassing Bitcoin as the dominant digital store of value.”
What Is a Digital Store of Value?
Bitcoin is often described as “a solution looking for a problem,” built on emerging technology that has the potential to disrupt global finance but currently has limited use cases. Many investors now see it as a digital store of value—comparable to gold, real estate, or fine wine.
However, historically, all successful stores of value have provided either yield or utility. Bitcoin currently offers neither.
In contrast, other cryptocurrencies like Ethereum were designed with clear economic logic. Bitcoin’s first-mover advantage is fragile; the crypto space is still young, and technological or preference shifts could quickly displace incumbents.
Ethereum currently appears to be the most likely candidate to dethrone Bitcoin, though the outcome is far from certain.
Why Ethereum Could Lead
Given the importance of utility in defining a store of value, Ethereum is well-positioned to become the leading digital value storage asset. Its ecosystem supports smart contracts and allows developers to build new applications.
Most decentralized finance (DeFi) applications are built on Ethereum, and the majority of non-fungible tokens (NFTs) are purchased using ETH. Ethereum also processes a higher transaction volume than Bitcoin, reflecting its broader utility.
As cryptocurrencies gain traction in DeFi and NFTs, Ethereum is building its own first-mover advantage in applied crypto technology.
Ethereum can also be used to securely and privately store almost any type of information on a distributed ledger. This information can be tokenized and traded, opening the door to a vast marketplace of tradable data.
Current use cases like NFTs for digital art and collectibles only scratch the surface. For example, individuals could eventually store and sell their medical data to pharmaceutical research companies via Ethereum. Digital profiles might include asset ownership, medical history, and even intellectual property.
Additionally, Ethereum offers the benefit of a decentralized global server infrastructure—as opposed to centralized providers like Amazon or Microsoft—making it a promising solution for secure and transparent data sharing.
Supply Dynamics: Scarcity Isn’t Everything
A common argument for Bitcoin as a store of value is its fixed supply. However, the report argues that demand—not scarcity—drives value. No other major store of value has a strictly limited supply.
Gold’s supply has grown at nearly 2% per year for centuries, yet it remains a premier store of value. Rare elements like osmium are not used as value stores.
A fixed supply may even encourage hoarding, forcing new buyers to bid up prices and increasing volatility—potentially leading to financial bubbles.
What matters more than fixed supply is protecting against sudden and unpredictable increases in new supply. Ethereum does not have a hard supply cap, but its annual issuance is limited, meeting this crucial criterion.
👉 Explore more blockchain investment strategies
Frequently Asked Questions
What did Goldman Sachs previously say about Bitcoin?
In 2020, Goldman Sachs expressed skepticism, stating that cryptocurrencies were not a legitimate asset class due to high volatility and lack of institutional adoption. The firm has since reversed its position.
Why does Goldman believe Ethereum could surpass Bitcoin?
Ethereum’s utility through smart contracts, DeFi, NFTs, and scalable data storage solutions gives it broader economic use cases than Bitcoin, which is primarily used as a store of value.
How does Ethereum’s supply differ from Bitcoin’s?
Bitcoin has a fixed supply of 21 million coins. Ethereum currently has no hard cap, but its issuance rate is controlled through periodic upgrades, and it is transitioning to a more deflationary model.
Is regulatory risk a major concern for cryptocurrencies?
Yes. Regulatory actions pose the most significant challenge to broader adoption and price stability. Governments worldwide are still forming policies around digital assets.
What is driving institutional interest in cryptocurrencies?
Institutions are attracted to the potential for high returns, portfolio diversification, and the growing infrastructure around crypto custody, trading, and compliance.
Can Ethereum really be used for data storage and trading?
Yes. Through tokenization, Ethereum can represent and trade almost any form of data or asset—from medical records to intellectual property—securely and transparently.