Ex-Goldman Sachs Warns Crypto Investors to Not Make the Same Mistake The Banking Giant Did In 2003
- Gloomy narrative of crypto industry bad for its long term growth
- The tech is still early just like the Internet in 1995
- Goldman Sachs, the first and biggest investor in Alibaba sold its share in the company in 2003, losing 7,795% increase in valuation
- Now identify the long term winners, the Amazon and Alibaba of crypto
Are you still crazily optimistic about Bitcoin?
If not then this could put a long term growth risk on the cryptocurrency industry, according to Spartan Black, a partner at blockchain advisory and investment firm The Spartan Group.
The former Indus capital and Goldman Sachs partner fears that even the early crypto diehards are now “sounding the industry’s death knells” and this “gloomy” narrative, he says is not good for the entire space.
Why the Pessimism Folks?
It’s not just that many projects are ”floundering” and the funding for blockchain-startups is also down “sharply,” Spartan Black says people are still waiting for a killer app when Bitcoin’s role as an alternative store of value is the one.
People, he says are getting impatient for the technology and the digital currency to make it to the mainstream. But Bitcoin has not only seen “phenomenal growth” in its value but also growing acceptance.
The market is also seeing the proliferation of DeFi application. The lending platforms as we have seen are seeing immense growth, going from $1.5 million in collateral value about two years ago to $665 million today. As DeFi scales, it “will slowly eat into the business domains of existing financial institutions.”
Though it is financial speculation at this point, the main breakthrough necessarily have to be related to the “creation and transmission of money/value,” argues Spartan Black.
It’s Still Early, We are only getting started
The tech is still early.
Institutional investors have just started to come into the asset class and crypto assets don’t even feature in most portfolios yet, notes Spartan Black.
Crypto space currently is just like when the Internet was getting started in 1995. At that time, Netscape was worth about $5 billion and Amazon, Alibaba, Google, and Facebook were nowhere in the picture.
And just like the internet innovation wouldn't have happened without the dotcom bubble, experimentation won't be possible without the ICO bubble.
The similarities just don’t end here.
After the dotcom bubble burst, the Goldman Sachs veteran says many of these startups ran out of funds and shut down as everyone was “very negative” on them.
But the biggest investing error at that time was made by Goldman Sachs.
See the Bigger Picture
The investment banking giant’s PE firm invested $200 million in 25 Asian tech startups including Alibaba, of which it was the first and biggest (26.4% stake) investor in 1999.
Goldman Sachs sold its entire stake in the company in 2003 for $22 million valuing Alibaba at $83 million. At that time, it provided the bank 7x ROI but today Alibaba's market cap is $537 billion, which is an increase of 7,795%.
“If it had held on to Alibaba, it would have generated pretty solid returns for investors even if all the other investments went to zero.”
And a similar situation, he says we are now witnessing in the blockchain industry where many projects are either dead or slowly dying. This is just the “law of natural selection and is a healthy development.”
So, what can you do?
As an investor, Spartan Black says you can identify the long term winners, the Amazon and Alibaba of crypto out of the wreckage because,
“Throwing in the towel now is akin to selling Alibaba and other internet startups in 2000-2003. You don’t want to make that mistake.”