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January 25, 2022updated 31 Jan 2022 2:17pm

Ex-Goldman Sachs chair converts to religion of bitcoin even as market tanks

By Eric Johansson

How about this for weird timing: former Goldman Sachs chairman and CEO Lloyd Blankfein has outed himself as a hesitant bitcoin supporter amidst plummeting cryptocurrency valuations. He is the latest incumbent finance bigwig to begrudgingly pray at the altar of cryptocurrencies.

His conversion does make some sense given that 2021 proved to be the biggest year for bitcoin so far. Despite a few tumbles, it reached a $68,000 all-time high in November. However, this year hasn’t been good for digital dosh evangelists. The value of the world’s biggest cryptocurrency has crashed by almost 50% from its all-time high and was trading at $33,046 on Monday.

Nevertheless, Blankfein told CNBC yesterday that his views have evolved after digital assets attracted trillions of dollars in value.

“Look, my view of it is evolving,” Blankfein said. “I can’t predict the future, but I think it’s a big thing to be able to predict the present, like, ‘What is happening?’ And I look at the crypto, and it is happening.”

Despite a major sell-off in cryptocurrencies over the past weeks which has seen the total market cap fall from $3.1tn in November to below $2tn, Blankfein was still cautiously optimistic.

“It’s lost a lot of value, but at a point where it’s trillions of dollars of value contributing to it and whole ecosystems are growing around it,” he said. “Of course, we have the benefits of instantaneous transfer and reduction of credit risk and all the benefits of blockchain.”

Is it that surprising though?

Blankfein’s cryptocurrency conversion may surprise some who remember earlier remarks back in 2021 about how regulators should be “hyperventilating” over the rise of bitcoin, warning how the technology could be used to finance terrorism.

But should people be shocked about his metamorphosis? After all, Goldman Sachs launched its cryptocurrency deck and scaled up its bitcoin trading services in 2021. The investment bank’s initiative came after investor pressure grew to include cryptocurrency services or risk losing custom to fintech competitors.

Other Wall Street behemoths have reacted in a similar way. Investment bank rival JP Morgan signed on cryptocurrency exchange Coinbase in May 2020, despite CEO Jamie Dimon famously saying that “bitcoin is a fraud” in 2017.

He has since backpedalled on his remarks, saying he regretted them and that while he was “not a bitcoin supporter,” Dimon noted that “clients are interested, and I don’t tell clients what to do.”

JPMorgan began offering wealth management clients access to cryptocurrency funds in the summer of 2021. The JP Morgan CEO has since noted that he has not changed his own views about cryptocurrencies.

“I personally think that bitcoin is worthless,” the JP Morgan CEO said in October. “I don’t think you should smoke cigarettes either.”

Earlier in January, JP Morgan announced that it would put a massive $12bn towards boosting its tech chops over the next year, including investing in blockchain technologies.

Elsewhere, incumbent players like PayPal and Mastercard have also launched cryptocurrency services. More companies – such as Uber, Walmart and eBay – are also exploring similar initiatives.

“I hate the bitcoin success”

Other big names in the industry have – contrary to the former Goldman Sachs CEO – openly maintained their distrust for the nascent industry.

Investor giant Warren Buffett and his Berkshire Hathaway vice chair Charlie Munger spent much of their annual shareholder meeting in May 2021 pouring scorn over the industry.

“I hate the bitcoin success and I don’t welcome a currency that’s so useful [for] kidnappers in our stores and so forth, nor do I like just shuffling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air,” Munger said.

In October, the chair of NatWest and former deputy governor of the Bank of England compared cryptocurrency trading to entering the gates of Hell.

“It’s gambling as far as I can see, with a sort of libertarian veneer on top of it. You should put a big sign on the door saying, Abandon Hope All Ye Who Enter Here,” said Sir Howard Davies, referencing the inscription over hell’s gates in 14th-century writer Dante’s Inferno.

Bitcoin evangelists bite the sour apple

Despite the former Goldman Sachs chair and others opting to openly support bitcoin, the recent slump has been felt by big tech names supporting cryptocurrencies.

Elon Musk is probably the most vocal bitcoin evangelist out there. His influence is so great that his tweets send tidal waves across the cryptocurrency market, either causing massive valuation slumps or soaring peaks. However, even Musk has recently felt the sting.

Back in February 2021, Musk’s Tesla bought $1.5bn worth of bitcoin when the price was about $35,000. When the price of the speculative coin reached over $68,000, that arguably seemed like an amazing investment. Bitcoin has, however, been sent into free fall since then due to market uncertainty and an overall tech stock slump. It was trading at $33,046 on Monday. For anyone keeping score, that means the Tesla bitcoin stash is now worth $1.44bn. Even for a $1tn Goliath like Tesla, that is an eye-watering loss.

During 2021, Tesla also reversed its decision to accept bitcoin as payments, with Musk claiming he’d grown worried about the environmental impact of bitcoin. As we reported at the time, the decision hardly had zero impact on carbon emissions, in contrast to the actual production of Tesla cars.

Musk is not the first tech titan to bite the sour apple of cryptocurrencies.

In the past, Masayoshi Son has provided another example of a tech CEO stung by bitcoin. For a long time the SoftBank CEO was celebrated as a trailblazer in the tech industry with his SoftBank’s Vision Fund being one of the world’s most prominent tech investors. A few years ago, if anyone could be seen as having his finger on the pulse of the industry, it was Son.

His halo has since come askew, following a smattering of bad investments, most notably WeWork, which suffered a failed IPO and a messy divorce from its co-founder Adam Neuman.

One of the signs that Son may not be as much as a tech guru as people thought was seen in 2017 when he famously bet $200m on bitcoin. He sold his stock for a $130m loss one year later, lamenting that he “doesn’t understand” the cryptocurrency. His brush with the downside of investing in the fluctuating digital dosh didn’t dissuade Son from believing bitcoin will be useful, only conceding that his efforts were better placed elsewhere.

Not that Son’s renewed focus has helped SoftBank’s Vision Fund. It reported a record quarterly loss of 825.1bn yen ($7.3bn) in November, exceeding the group’s 788.6bn yen loss reported last year during the pandemic. Overall, the Japanese conglomerate suffered a net loss of 397.9bn yen in the three months ended September 30.

Part of the recent slump is due to regulators and lawmakers around the world increasingly seeking to tame the Wild West of cryptocurrencies. China has openly banned it and the US Securities and Exchange Commission has urged lawmakers to strengthen its powers to regulate the industry.

Similar initiatives are happening across the world, something that a recent GlobalData report suggested would actually help the industry.

“There is a substantial lack of regulatory clarity regarding the underlying blockchain technology, which acts as a significant barrier to broader adoption,” GlobalData analysts wrote in the report.

“Regulations have struggled to keep up with advances in technology. This is particularly true with blockchain as it, at least in the case of public blockchains, reduces oversight. Many countries (and different agencies within a country) have taken steps to regulate blockchain in some fashion, but their disparate approaches have confused blockchain companies.”