Is Bitcoin a Bursting Bubble?...Lloyd Blankfein on Inflection Points, Growth and Technology...New Highs for ‘Volatility of Volatility’

Insights on markets, industries and the global economy [Goldman Sachs]( [BRIEFINGS] February 20, 2018 What's 'Top of Mind': Is Bitcoin a Bursting Bubble? Above: Allison Nathan of Goldman Sachs The drastic rise (and fall) in cryptocurrency prices over the last several months has some investors crying "bubble," while others remain so convinced of digital currencies' transformative potential that they see significant upside to December's near-$20,000 peak. The key to determining fair value, says Goldman Sachs Research Senior Strategist and Top of Mind Editor Allison Nathan, is identifying the economic problems cryptocurrencies solve -- an exercise that leaves Goldman Sachs economists cautious. "In most areas of the world where we have well-functioning fiat currencies and reliable banking systems, there just doesn't seem to be a need for digital currencies," Nathan says. And as cryptocurrencies evolve, it's likely that many of today's names eventually cease to exist. The distributed ledger technology enabling the cryptocurrency craze, however, looks to have better staying power. Goldman Sachs Research remains optimistic that the [blockchain]( can have a transformative impact across a wide range of industries, from lodging to finance and utilities. [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=What%27s%20%27Top%20of%20Mind%27%3a%20Is%20Bitcoin%20a%20Bursting%20Bubble%3f&body=http%3a%2f%2fwww.goldmansachs.com%2four-thinking%2fpages%2fallison-nathan-top-bitcoin.html) Talks at GS: The Psychology of Partisanship and Ethical Leadership Above: Robert Mass of Goldman Sachs and Jonathan Haidt of NYU Stern School of Business To understand America's widening partisan divide, it is critical to understand how human psychology is shaped by a sense of tribalism, says Jonathan Haidt, social psychologist and professor of Ethical Leadership at NYU Stern School of Business. In a recent Talks at GS session moderated by Goldman Sachs' Robert Mass, Haidt explained how confirmation bias contributes to political divisiveness from Capitol Hill to college campuses, as winning arguments is prioritized over finding common ground. "When you have political disagreements and our team is fighting your team and we can't give you an inch, we are all incredibly motivated to confirm our beliefs and to disconfirm yours." [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%3a%20The%20Psychology%20of%20Partisanship%20and%20Ethical%20Leadership%20&body=http%3a%2f%2fwww.goldmansachs.com%2four-thinking%2ftalks-at-gs%2fjonathan-haidt.html) Goldman Sachs CEO Lloyd Blankfein on Inflection Points, Growth and Technology Last week, Goldman Sachs Chairman and CEO Lloyd Blankfein delivered the keynote address at the 2018 Credit Suisse Financial Services Forum, where he highlighted our progress on various growth initiatives and underscored the importance of engineering to the firm's strategy. Blankfein also noted key inflection points -- in regulation, global economic growth and central bank policies -- that are providing a positive backdrop for growth. "Market conditions, broader economic trends and client conviction are clearly more favorable and we believe will benefit us," he said. [Learn more]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Goldman%20Sachs%20CEO%20Lloyd%20Blankfein%20on%20Inflection%20Points%2c%20Growth%20and%20Technology%20&body=http%3a%2f%2fwww.goldmansachs.com%2finvestor-relations%2fpresentations%2f2018-credit-suisse-presentation.html) Volatility of Volatility Hits New All-Time Highs Source: Goldman Sachs Securities Division; data as of 2/14/18. Investors have been on a bumpy ride in recent weeks as volatility, which had been at historically low levels, has returned in force. But according to one measure closely watched by traders -- the velocity at which implied vols are moving -- investors are also adjusting their expectations around market volatility at a record pace. "The world is adjusting its thoughts around future volatility at an extremely fast pace," says Brian Garrett of Goldman Sachs' Securities Division. "The speed at which the market went from complacency to extreme caution back to complacency is of a magnitude we have never observed." In the chart above, the blue line measures the realized swings in the green line, which reflects one-month implied volatility levels. The upshot: the market is repricing its expectations of future movements quicker than it has at any other period -- including the global financial crisis. Briefly...on Investing in India: A Study of Contrasts For investors, India's biggest challenges are also its biggest opportunities. Earlier this month, Goldman Sachs Asset Management (GSAM) took a group of 21 institutional investors to India to meet with policymakers and corporate leaders across New Delhi, Mumbai and Bengaluru. Katie Koch, global head of client portfolio management and business strategy for GSAM Fundamental Equity, shared highlights from the trip. Katie, you just got back from GSAM's annual investor trip, highlighting India's investment opportunities, improving policy and economic climate. Why India? Katie Koch: We have a bullish outlook for emerging markets more broadly, but India really stands out. For one, we've had a long-standing presence in India -- it is a country where favorable demographics are driving economic growth. The domestic consumer stands at an incredible inflection point as we expect GDP per capita to double in less than 10 years. While the country took a short-term economic hit from demonetization and GST in 2016, the country and companies are now transitioning to a phase where the economy can reap the gains of structural reforms. The country itself is really a study of contrasts. More than 1,600 languages are spoken across 29 states and the country necessitates a differentiated, rather than a Pan-India, approach to serve its diverse needs and people. To that point, India is concurrently running projects to build both physical and digital infrastructure, to better enable the travel of goods, information, and the population of 1.2 billion people. At the same time, the public sector is working to smooth the friction points to allow for a greater ease of doing business and living. This transformation is already under way, which we saw first-hand, after meeting with the several key policymakers, including the country's Finance Minister, Railway Minister and the Transport Minister. Our clients were incredibly encouraged by the vision and execution of Modi's government and we are focused on the extent with which this positive momentum can continue as Modi's BJP party faces central elections in 2019 and numerous state elections this year. Where is India in the midst of its political and economic reforms? KK: We think India is just getting started. The country itself is on the precipice of a multi-year expansion, fueled by earnings recovering to its mid-teens historical average. From a macro perspective, India today is in the same position China was in 2000 with similar GDP per capita profiles and nearly identical share of total global output, although India lags China by internet penetration and online consumption. India is also young in its investment cycle and also in its demographic profile. More than 65 percent of India's population is under the age of 35. And despite contributing only 3 percent of global GDP, India holds 18 percent of the world's working population. We continue to see great potential for India, with opportunities to generate strong return on equity, particularly in sectors where India is trying to solve domestic challenges, like employment, education and healthcare for the 150 million of new workers that will come into the economy in the next 10 years. From an investment perspective, our view on India is set within an optimistic framework for emerging markets equities more broadly, providing double the earnings growth at a 25-30% discount to US equity markets. India's market structure is particularly compelling due to the number and diversity of publicly listed companies that offer access to India's growing consumer, while having a much smaller share of state-owned enterprises than China, for example. We prefer small and midcaps, where 30% exist outside of the benchmark index, and we have been able to generate outperformance with our bottom-up expertise on the ground in India. What trends are you observing in India that may set the tone for more global consumption patterns and innovation ahead? KK: India is becoming increasingly relevant in the global economy and, in many cases, shaping the way we consume and innovate globally. Without any incumbent technological systems in place, India has been able to innovate and garner faster uptake than many of their developed market counterparts. Development of mobile payment solutions -- which got a boost by demonetization policies in India in 2016 -- is projected to grow from 2.9 billion transactions last year to 450 billion in the next 5 years, or a $4 trillion opportunity, according to GSAM estimates. Healthcare represents another opportunity. More than one out of three pills consumed in the US is manufactured by an Indian company, for example, but the challenge -- and opportunity -- ahead is providing greater healthcare domestically to India's growing population. Goldman Sachs Media Highlights Bloomberg - February 15 [South African Budget Must Deliver Reforms, Says Goldman's Coleman]( (1:10) MSNBC - Morning Joe - February 14 [Small Business Owners Gather for First-Ever Summit]( (12:01) Bloomberg - February 14 [Goldman's Solomon on M&A, Tax Reform and Market Volatility]( (11:15) Cheddar - February 13 [Goldman Sachs CEO Lloyd Blankfein on Consumer Lending With "Marcus"]( (2:00) The Wall Street Journal - February 13 [Goldman CEO on the Return of Volatility: 'Not Whether, But When']( Bloomberg - February 13 [Goldman's Lemkau Talks Volatility, Taxes and M&A]( (6:13) Bloomberg - February 13 [Blankfein Says Small Businesses Have Taught Goldman About Red Tape]( (1:26) [Subscribe]( The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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