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CRYPTO ASSETS

August 4, 2022  |  8 Minutes Read


 

Quarterly Snapshot

 

Target date fund flows for the quarter were more pronounced compared to the previous quarter, while traditional plan participants sought lower market volatility in money market funds during challenging market conditions. Year-to-date active manager outperformance opportunities have been in US equities, specifically in large cap value, small cap value and small cap growth.

 

 

Net Target Date Fund Investment Flows

 

Source: Strategic Insight, Simfund as of June 30, 2022; For open-end mutual funds only.

 

 

Net New Investment Flows

 

Source: ICI “The U.S. Retirement Market, First Quarter 2022,” released June 2022.

 

 

Asset Class Performance

 

Source: Morningstar, as of June 30, 2022. Performance is annualized for periods greater than one year. Past performance does not guarantee future results, which may vary.

 

 

Active Management Performance

 

Source: Morningstar, as of June 30, 2022. Net of fees.

 

 


 

In Focus: Crypto Assets

 

Crypto assets have captured the attention of many defined contribution industry stakeholders in light of recent regulation, litigation and product innovation. This quarter, In Focus aims to provide an overview of the crypto asset conversations taking place in DC plans. 

 

 

Defining Cryptocurrencies 

 

What are currencies?

Efficient modes of exchange, units of account, and stores of value that are typically backed by a government

 

What are cryptocurrencies?

Digitally native assets with similar characteristics to those of currencies but designed to secure and store transactions cryptographically without reliance on a centralized administrator 

 

Why are they needed?

To allow for participation in a blockchain ecosystem

 

What are blockchains?

A unique type of database that enables the decentralized, digital transfer of value 

 

Source: Goldman Sachs Asset Management as of May 31, 2022.

 

 

Ownership 

 

Ownership and utilization of cryptocurrencies based on third-party survey data:

  • 25 million households with investable assets are investing in cryptocurrency (this represents 22% of households in 2021).
  • 66% of cryptocurrency investors are using it to trade, 22% of investors are using it for payments (and 12% are doing both). 

 

Source: Hearts & Wallets Research. https://www.planadviser.com/fidelitys-bitcoin-401k-offering-prompted-plan-sponsor-examine-plan-exposures/

 

Market Cap

 

Bitcoin and Ether represent the majority of market cap of crypto assets

 

Source: CoinMarketCap as of July  14, 2022. 

 

 

Cryptocurrency Owners

 

Source: Hearts & Wallets Research. https://www.planadviser.com/fidelitys-bitcoin-401k-offering-prompted-plan-sponsor-examine-plan-exposures/

 


 

Risk & Potential Return

 

The below charts provide information on Bitcoin’s historical performance, volatility and S&P 500 correlation. 

 

 

Performance

 

 

Source: Bloomberg and Goldman Sachs Asset Management as of June 30, 2022. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company; or its securities. Past performance does not guarantee future results, which may vary.

 

Asset Volatility Comparison

 

 

Source: Bloomberg and Goldman Sachs Asset Management as of May 31, 2022.

 

 

Historical Market Correlation

 

 

Source: Bloomberg and Goldman Sachs Asset Management as of May 31, 2022. Reflects Bear Market period of February 19, 2020–March 23, 2020. For illustrative purposes only.

Past performance does not guarantee future results, which may vary. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities.

 


 

Incorporation in DC Plans

 

The use of cryptocurrencies and digital assets for retirement plans has been called into question, and conversations are taking place among a variety of stakeholders, including regulators and product innovators.

 

 

 

 

Spotlight on Product Innovation

 

 

Fidelity

  • In April 2022, Fidelity announced plans to create a Digital Assets Account for 401k plans, with plans to launch in the summer
    Participants will be able to invest up to 20% of their balance in bitcoin as part of the core menu
    It is up to the plan sponsor to elect to make this offering available to participants

 

 

ForUsAll

  • ForUsAll has announced plans to add cryptocurrency to its 401k platform, which is expected to launch this summer
  • Participants will be able to allocate up to 5% of their portfolios to more than 50 cryptocurrencies via Coinbase
  • Will be offered as an in-plan brokerage window
  • ForUsAll has indicated that it provides financial disclosures to participants and requires investors to pass an interactive quiz before accessing the window

 

 

Government Accountability Office (GAO)

June 2022: The GAO is asked to study crypto in retirement plans and their oversight. House Ways and Means Chairman Neal asked the federal watchdog to look into the issue, including how plans would administer the options, including valuation, fees and fiduciary safeguards for participants.

 

 

Litigation

June 2022: Plan provider ForUsAll sued the DOL over its March 2022 guidance. It claims the DOL is violating the Administrative Procedures Act and overstepping its authority by attempting to institute what amounts to a ban on cryptocurrencies with a notice-and-comment rulemaking process.

 

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Defined Contribution Quarterly 3Q 2022: Crypto Assets

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Disclosures

The views expressed herein are as of 8/2/2022 and subject to change in the future. Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security, they should not be construed as investment advice.

Risk Considerations:

Buying, selling and using cryptocurrencies carry numerous risks.  Digital currency is not legal tender. No law requires companies or individuals to accept cryptocurrencies as a form of payment. Instead, cryptocurrencies use is limited to businesses and individuals that are willing to accept them. If no one accepts them, cryptocurrencies will become worthless. Cryptocurrency payments are irreversible.

Platforms that buy and sell cryptocurrencies can be hacked, and some have failed. In addition, like the platforms themselves, digital wallets can be hacked. As a result, consumers can—and have—lost money.

Cryptocurrency transactions can be subject to fraud and theft. Unlike US banks and credit unions that provide certain guarantees of safety to depositors, there are no such safeguards provided to digital wallets.

THESE MATERIALS ARE PROVIDED SOLELY ON THE BASIS THAT THEY WILL NOT CONSTITUTE INVESTMENT ADVICE AND WILL NOT FORM A PRIMARY BASIS FOR ANY PERSON’S OR PLAN’S INVESTMENT DECISIONS, AND GOLDMAN SACHS IS NOT A FIDUCIARY WITH RESPECT TO ANY PERSON OR PLAN BY REASON OF PROVIDING THE MATERIAL OR CONTENT HEREIN. PLAN FIDUCIARIES SHOULD CONSIDER THEIR OWN CIRCUMSTANCES IN ASSESSING ANY POTENTIAL INVESTMENT COURSE OF ACTION.

Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.

THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO.

Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant.

Goldman Sachs does not provide legal, tax or accounting advice, unless explicitly agreed between you and Goldman Sachs (generally through certain services offered only to clients of Private Wealth Management). Any statement contained in this presentation concerning U.S. tax matters is not intended or written to be used and cannot be used for the purpose of avoiding penalties imposed on the relevant taxpayer. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you may disclose to any person the US federal and state income tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind. Investors should be aware that a determination of the tax consequences to them should take into account their specific circumstances and that the tax law is subject to change in the future or retroactively and investors are strongly urged to consult with their own tax advisor regarding any potential strategy, investment or transaction.

Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.

This material is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. This material is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives.

Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.

Company names and logos, excluding those of Goldman Sachs and any of its affiliates, are trademarks or registered trademarks of their respective holders. Use by Goldman Sachs does not imply or suggest a sponsorship, endorsement or affiliation.

Index Benchmarks

Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices. The indices referenced herein have been selected because they are well known, easily recognized by investors, and reflect those indices that the Investment Manager believes, in part based on industry practice, provide a suitable benchmark against which to evaluate the investment or broader market described herein.

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Goldman Sachs Asset Management has no obligation to provide any updates or changes.

Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. It should not be assumed that investment decisions made in the future will be profitable or will equal the performance of the securities discussed in this document.

©22 Morningstar, Inc.  All Rights Reserved.  The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely.  Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.  Past performance is not guarantee of future results. 

Confidentiality

No part of this material may, without Goldman Sachs Asset Management’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient.

Date of First Use: 8/4/2022. 286570-OTU-1647468

 

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