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baccoldman tis Investment Management Division An Overview of the Current State of Cryptocurrencies and Blockchain Technology November 15, 2017 Investment Strategy Group EFTA00793120 Today's Discussion Investment Management Division tgta" I. The Cryptocurrency Marketplace II. Blockchain Technology and Potential Uses III. How Cryptocurrencies Work IV. Is Bitcoin a Viable Currency? V. Is Bitcoin a Viable Asset? VI. Cryptocurrency Risks VII. Key Takeaways Source: Investment Strategy Group EFTA00793121 Cryptocurrencies Have Received Enormous Attention Investment Management Division Goldman Sachs 1. Bitcoin Currency Value — Through November 14. 2017 7000 6000 2000 1000 0 2011 2012 2013 2014 2015 2016 2017 6.590 592% YTD 2. Cryptocurrencies with Market Capitalization over USS1 Billion 6120 3100 107.5 302 7.8 3A 3.3 Is 1.8 1.7 1.7 1.8 eaccia unworn es tool nooks Dash LOSCOIn moos* NEO NEI.1 IOTA Elheteurn Cash Classic • Bitcoin was conceived in 2008 by an anonymous inventor who is known by the pseudonym, Satoshi Nakamoto. • Since then, an estimated 2,000+ cryptocurrencies have come into existence, with a combined market cap of over $200bn.' • There are an estimated 129 focused hedge funds2 and 121 cryptocurrency exchanges globally.3 (I) (2)1 Source: Investment Strategy Group. (3) htlps://cryplocciincharts.infolmarkets,inf o 2 EFTA00793122 Cryptocurrencies have Garnered Diverging Views Timeline of Statements and Measures over Recent Months Investment Management Division (itfittinan Mchs Japanese government recognizes Bitcoin as legal tender 1 China bans ICOs Apr. 1, 2017 Sept. 4, 2017 "It:s a fraud... worse than tulip bulbs"' -J. Dimon Sept. 12, 2017 Sept 11, 2017 Japan's FSA approves 11 operators of South Korea cryptocurrency exchanges "Still thinking about #Bitcoitt. No "Bitcoin is 'a ponzi scheme' bans Sept. 29, 2017 conclusion - not - DBS Group ICOs endorsing/rejecting "3(David Gledhill) - Lloyd Blankfein Sept. 28, 2017 Oct. 3, 2017 Nov. 14, 2017 Sept. 17, 2017 July 24, 2017 China bans BIS publishes Sept. 27, 2017 Sept. 29, 2017 US CFTC cryptocurrency report weighing "[Bitcoin is] SEC approves exchanges risks and certainly more than charges two Bitcoin futures benefits of just a fad"2ICOs with trading cryptocurrencies - MS CEO, Gorman fraud Oct. 13, 2017 ("Indierley laundering." - Blackrock CEO Larry Fink (1) Barclays Investor Conference. September 12, 2017. (2) Wall Street Journal Event. September 27, 2017. (3) Twitter, October 3, 2017. (4) CNBC, November 14, 2017. Source: Investment Strategy Group. public news sources. 3 EFTA00793123 What is Blockchain Technology? Investment Management Division Goldman Melts Illustrative Schematic: Centralized Network versus Distributed Network Centralized Network Distributed Network ■ Blockchain is the critical and differentiating infrastructure that underlies cryptocurrencies. ■ Unlike most networks today, which rely on a centralized hub, a blockchain is a public distributed network whose complete database can be accessed and maintained by each member of the network. ■ The blockchain is a shared and continually reconciled database. As new transactions occur, data is quickly disseminated to, verified, and incorporated across all nodes on the network. ■ Because it has no single maintainer, the blockchain's history is resistant to editing by a malicious actor. Source: Investment Strategy Group. 4 EFTA00793124 Blockchain Technology Holds Potential for a Range of Applications 1. Financial Market Transactions Current State S Blockchain- Enabled Settlement T+ 2 T+ 0 • • Banks are focused on blockchain technology for post-trade settlement and clearing, with aims to: I Streamline equities settlement from T+2 to T+0. Investment Management Division tit* man rhti 2. Identity Validation and Security Client XYZ ssi Ifft ereac iaer ILLIE USOectlifele 410 . rrr Oelne Reale Iteratitse Secure Digital identity • Potential to securely link identity and payment credentials to a unique individual. I Benefit peer-to-peer businesses reliant on counterparty trust. ,/ Streamline compliance and anti-money laundering surveillance. • Goldman Sachs Global Investment Research expects limited blockchain adoption over the next 2-5 years, and broader acceptance after 5-10 years. — Capital market adoption may take over 10 years, given regulatory oversight and the multitude of participants. Source: Investment Strategy Group. GS Investment Research. Profiles in Innovation: Blockchain: Goldman Sachs & Co LLC, Blocchain. The New Technology of Trust, 5 EFTA00793125 What is a Cryptocurrency and Why is Blockchain Technology Important? Investment Management Division Goldman baits Common Features of Cryptocurrencies Common Features of Cryptocurrencies / V. V.• Digital Coin ownership is represented by entries on a digital ledger, not by a physical token. Decentralization • No single entity controls the currency. Open Source • All source code is available freely online. Distributed Consensus • Each cryptocurrency uses a method for obtaining consensus on ownership without a central arbiter. • Pseudonymity Coin ownership is not linked to real-world identities within the blockchain. Cryptography (computerized encoding) • Several cryptographic techniques are used to verify transactions, protect identities, and limit supply. Attributes • A cryptocurrency is a decentralized digital coin. It allows users to make transactions and store money in a secure and pseudonymous manner. • All cryptocurrency transactions are recorded chronologically on a blockchain, which acts as the critical infrastructure underlying a cryptocurrency. • The process of verifying transactions and ensuring the validity of the blockchain is called "mining." • Mining solves the "double-spending" problem that had plagued previous attempts to implement a digital currency. Source: Investment Strategy Group, 6 EFTA00793126 How Do Miners Process Individual Transactions? Investment Management Division I joldinan Salts illustrative Schematic of a Bitcoin Transaction Step 1: Bob wants to pay Alice 0.5 BTC Bob • Previous Transaction in wh.ch Bob was paid 1 BTC New transaction Alice • 1 1) Before sending any bitcoins, Bob must hold bitcoins in his wallet from a previous transaction (or by solving a block to earn the mining reward). 2) Bob creates a new transaction in which he pays 0.5 BTC (of his 1 BTC) to Alice. 3) Bob broadcasts this transaction to the network for validation and inclusion in the blockchain. Step 2: Miners Verify the Transfer Request and add it to the next block Miner A Bob has 1BTC Bob wants to pay Alice 0.58TC Does Bob have 0.58TC?? Record Bob s 0.58TC Transfer to Alice Miner B Bob owns 1BTC Bob wants to pay Alice 0.58TC Does Bob have 0.58TC?? ecord ob s 0.58TC Transfer to Alice Miner C Bob owns IBTC Bob wants to pay Alice 0.5BTC Does Bob have O.SBTC?? Record Bob's 0.58TC Transfer to Alice Step 3: Block Containing Bob and Alice's Transaction is Added to the Blockchain 1) Miner B happens to be the first to solve this block and adds it to the blockchain. Miner B collects 12.5- bitcoin reward. 2) If Bob's transaction is included the block. Alice becomes the owner of 0.5 BTC, which will register in her wallet. ■ Consensus transaction validation creates a book of record for all transactions that have ever occurred. — Transactions may only occur if they are supported by evidence from previous transactions. — To send bitcoins, an owner's wallet uses its private key to prove ownership of the referenced bitcoins. ■ Transaction processing typically take 10-20 minutes, but can take up to 18 hours if the network is congested. Source: Investment Strategy Group. 7 EFTA00793127 What is Mining? Investment Management Division Gifitintan Sachs ASIC Mining Computer and a Mining Rig ■ Miners use highly specialized computers designed to run an algorithm that attempts to solve a cryptographic puzzle in order to add a new block on the blockchain. By design, a bitcoin block is created once every ten minutes. ■ The computing power required to solve the cryptographic puzzle is high and expensive; bitcoin mining consumes an estimated $1.3bn worth of electricity annuallyl—equivalent to Ireland's annual electricity consumption. ■ In order to incentivize mining, the first miner to complete a block is rewarded 12.5 bitcoins. The global supply of bitcoins is capped at 21mil (currently —16.5m) and follows a predetermined growth rate—the miners' rewards halve every four years. ■ Given -1-1.5m mining units globally, the likelihood of any one miner solving a block is low. Many miners join "mining pools," which are cooperatives which share block rewards proportionate to contributed mining power. — Mining pools are highly concentrated; the top four pools represent over 50% of total mining power. (1) Bitcoin Energy Consumption Index: htlosikkoiconomianettitcoin-enemv.consumotion Source: Investment Strategy Group. 8 EFTA00793128 ICOs Fund the Development of New Currencies Investment Management Division i tiolthithit Sachs 1. Approximate Funds Raised by ICOs by Calendar Year (US$ Milllions) Approximate Annual Funds RetsedThroughICOs (Smil 2. Total Funds Raised by Month (US$ Millions): Angel and Seed Stage Internet VC versus ICO $4.000 900 a Mgel & Seed VC Funding (Internet) $3.500 $3.461 800 700 $3.000 ssoo $2.500 2 49 500 $2.000 cc e 400 U. 346 $1.500 3 ° 300 262 256 259 235 $1.000 $500 loo200190 207 [ so $26 514 0 2 12 19 2014 2015 2016 2017 YI'D 7/16 8/16 9/16 10/16 11/16 12/16 1/17 2117 3/17 • CO1 Fundraising 638 839 4/17 6/17 6/17 7/17 8/17 9/17 • New blockchain-related projects are funded via an Initial Coin Offering (ICO). This process raises capital through token sales. • In an ICO, the object offered is either a new digital coin or a yet-undeveloped concept in search of funding. ICO investors purchase an ownership percentage of a future money supply or functionality. • While many ICOs support legitimate use cases, Autonomous Research asserts, "unfortunately, many ICOs are fraudulent."' • Rather than raising fiat currency, ICOs primarily raise capital in the form of Bitcoin and Ether, driving additional demand for the cryptocurrencies. (1) #Token Mania. Autonomous Research. July 2017. Source: Investment Strategy Group. Bloomberg. Goldman Sachs Global Investment Research. 9 EFTA00793129 Why Have Cryptocurrencies Rallied So Much? Investment Management Division Goldman Nuts 1. Shooin Supply Over Time (Million Tokens) 20 "E• Current Supply 2 4 IS a a N E 10 S.IthcIMAS qq 3°,11 Sgi"MISIZRSSItha1 /4X01 1i12R2222222222222221icmcmcmcmcmcmcmcm 2. Currency Composition of Bitcoin Purchase Volume 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% • US Dollar • Japanese Yon SotAh Korean Won • Chno:o Poem la Euro = Polsh Zloty • Omen Pound 2012 2013 2014 2015 2010 2011 2017 • In addition to speculation, which has been the biggest driver of cryptocurrency appreciation, other drivers include: • Perceived Scarcity: Bitcoin's 21 million token cap is expected to be reached in 2140 (16.5 million today). Many of the over 2,000 other cryptocurrencies, however, do not have a capped supply. Further, while unlikely, bitcoin's token cap could be raised if a consensus of programmers decided so. • Desired Safe-haven: Increased global participation reflects desire for an asset independent from governments or central banks ("digital gold"). Many governments from which investors have sought diversification, however, have recently banned domestic crypto-exchanges. Source: Investment Strategy Group. Bloomberg, 10 EFTA00793130 Investment Management As Bitcoin Ownership is Not Anonymous, Illicit Use has Fallen Division (inktinan satins Larry Fink on Bitcoin's Illicit Use "Bitcoin just shows you how much demand for money laundering there is in the world. That's all it is. It's an index of money laundering." — BlackRock CEO Larry Fink, October 13, 2017 ■ Because bitcoin is pseudonymous, not anonymous, users' real-world identities are ascertainable once the individual converts bitcoin to fiat currency. ■ Digital intelligence companies continually scan the blockchain to identify suspicious transaction activity. ■ The Blockchain Intelligence Group estimates that illegal transactions in bitcoin fell from -50% of total volume in 2015 to -20% in 2016, and represent "significantly less than that" today. ■ As law enforcement has become better able to track bitcoin ransom, cybercriminals have begun to favor currencies that allow anonymity, such as Monero and Zcash, and even Ether. Source: Investment Strategy Group, Blockchain Intelligence Group, digital-currencies.html. 11 EFTA00793131 Sovereign Currencies Meet Three Criteria Investment Management Division Qglga" 1) They are used as a medium of exchange. — To represent a medium of exchange, an instrument must facilitate the transaction of goods or services between parities (US$ are used to buy a barrel of oil). 2) They serve as unit of account. — A unit of account is a measurement which allows value to be accounted and compared (a barrel of WTI is worth -$55). 3) They are a store of value. — A store of value is an asset that can be saved, stored, and exchanged in the future for a predictable stable value (with 2% annual inflation, a nominal dollar today will be worth 820 in 10 years). Source: Investment Strategy Group. Do Digital Currencies Pose a Threat to Sovereign Currencies and Central Banks?. Daniel Heller. PIIE. 12 EFTA00793132 Do Cryptocurrencies Meet the Criteria for Currencies? 1) Bitcoin is an Inefficient Medium of Exchange Investment Management Division Goldman Sachs Average Transaction Fees (USS Monthly Average) 6- 5 4 0 C co a C a. N 2 0 • Jan-17 Mar-17 May-17 Jul-17 Sep-17 S34 $2.1 Nov-17 • Processing is expensive. The average transaction cost is —$3.40, rendering transfer of small fund balances uneconomical. • Processing is slow. Transaction processing typically takes a minimum of 10-20 minutes, but can take up to 18 hours if the network is congested (Visa and Mastercard authorize transactions in -20 milliseconds). • Bitcoin is not broadly accepted. A mere 9k merchants accept bitcoin, compared to the 37mi1 that accept Visa and MasterCard, and the billions of merchants and people globally that accept US dollars.' • Further, the IRS considers all cryptocurrency gains a taxable event (including for de minimis purchases). (1) Do Digital Currencies Pose a Threat to Sovereign Currencies and Central Banks?, Daniel Heller, PIIE. Source: Investment Strategy Group, Bloomberg, 13 EFTA00793133 Do Cryptocurrencies Meet the Criteria for Currencies? 2) Bitcoin is an Unreliable Unit of Account Investment Management Division Goldman Sachs Illustrative Pricing: US$ vs. Bitcoin as a Unit of Account January 2nd 2017: 1 Bitcoin $1,012 1 Bosch Dishwasher ($1.079) C November 14th 2017: 1 Bitcoin $6,590 r. 6 Bosch Dishwashers ($6,474) ■ Bitcoin's rapid appreciation makes it an unsatisfactory candidate as a unit of account. ■ In January, one could have purchased a dishwasher for one bitcoin. Today, it would cost 1/6th a bitcoin to buy the unit, implying severe deflation over the past several months. ■ In deflationary environments, people hoard their money in order to buy goods more cheaply at a later date, which has prompted most people to hoard their bitcoin. Source: Investment Strategy Group. Bloomberg. 14 EFTA00793134 Do Cryptocurrencies Meet the Criteria for Currencies? 3) Bitcoin is an Unstable Store of Value Investment Management Division Sachs 1. Volatility: Bitcoin versus Most Volatile EM Currencies 100% S 75% 26% 15.6% 16.1% 16.7% 11.7% 11.9% 12.9% r • 09% Turkey Mexico Colombia South Africa Brazil Argentina Russia (TRY) (MM) (COP) (ZAR) (BR1-) (ARS) (RUB) 2. Bitcoin, Ether and Ripple versus 500 Historical Drawdowns 95 Or: • Bitcoin Ether • Ripple • El 500 (Over Bitcoin's History) NMI 500 (Since 1945) 60 47 40 20 -20 40 -60 -80 33 ■47 22 1 SS 69% 63°:'60% -57% Count of Drawdowns of 15% or More Worst Historical Drawdown Bitcoin tXBT) (Left Axis) (Right Axis) • Bitcoin's annualized volatility of 95% dwarfs even the most volatile of EM currencies. • Bitcoin's volatility is 8x the volatility of US equities. In terms of both count and magnitude, Bitcoin, Ether and Ripple have all experienced more severe drawdowns over their short histories than the 500 has since 1945. • Bitcoin exchanges have thin liquidity, which plays a role in driving enormous price movement —so far to the upside, but which could cause a flash crash upon a large sell order. A -$30 million sell order would likely move the market by 5%. • A store of value should predictably preserve wealth. Bitcoin is unable to do so, as it neither generates income nor grows with earnings. Source: Investment Strategy Group, Bloomberg, 15 EFTA00793135 Compared to Commodities, Bitcoin's Market Price is Dislocated Relative to its Marginal Production Cost Investment Management Division G011101811 SUMS Oil. Gold and Bitcoin: Marginal Production Cost versus Current Market Price 400D 557 (.8%) $52.5 CrudeOil (WTI) • Marginal Production Cost •Cirrent Market Price (% above marvel production cost, 51,278 (.5016) ses•o Gold 56.517 (.350%) • $1200-1700 &coin • Bitcoin tokens possesses no physicality, a criteria for traditional commodities. • Compared to other commodities, Bitcoin's market price stands far above its marginal production cost. — Gold miners' and oil drillers' revenues stand 50% and 8% above their marginal production costs, respectively. — Bitcoin miners' revenue per bitcoin stands approximately 350% above their electricity expenditures. (1) Peter C.B. Phillips, Shu•Ping Shi and Jun Yu, "Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the• 500, International Economic Review. Oct 28, 2015. Source: Investment Strategy Group, Bloomberg. 16 EFTA00793136 Bitcoin's Market Cap is Dislocated Relative to that of Payment Processors Investment Management Division Goldman Sachs Relative Transaction Volume and Market Cap $10 $9 $8 $7 $6 $6 $4 $3 $2 $0 • 12m Transaction Volume ($Trillion) • Market Cap as %of 12m Transaction Volume (Right) $8.9 Visa 54.8 Mastercard 96.8% • Bison 100% 75% 50% 25% 0% ■ Traditional payment processors, Visa and Mastercard, each processed several trillion worth of transaction volumes in 2016. Bitcoin has processed $111 billion of transactions over the last 12 months. - Bitcoin's slow transaction time precipitated its recent "hard fork" in attempt to enhance processing capacity. ■ Whereas traditional payment processors' market cap represents —3% of their transaction volume, Bitcoin's represents 97%, suggesting its valuation is dislocated from its fundamental value and that speculation has driven its price. (1) "Future of Finance Payment Ecosystems," Goldman Sachs Global Investment Research. August 3, 2017. Source: Investment Strategy Group. Bloomberg. Corporate Annual Reports. 17 EFTA00793137 Bitcoin's Historical Risk Premium is Unexplainable Investment Management Division Sachs 1. Bitcoln Factor Exposures and Unexplained Premium 100% Z 00% 150% 100% 110% 100% »0% 1000% ISO 0% 2000% I ma% 1 100ltO fa y% 00% • trim Rat tIrmavn • PltdC.C.11 RN Pe•mun 2. Tactical Hedge Funds' Factor Exposures and Unexplained Premium TantalTradIrg 14tOge hod, • WOW • refill • hoxIng • Ii•P‘Idte • hangs Rale • Insp.' Wait 7.0% 6I3% 5.0% 4.0% 150% i 10% 10% 00% 2.8pp Tactical Trac10. Hedy Funk 22% 16% • ractormst Premium • 1•51oral Ibs It Premium • Bitcoin's 300%+ historical annual risk premium is idiosyncratic and cannot be explained by ISG's multi-factor model. • An inability to understand sources of risk and return makes one incapable of predicting when performance will reverse. • For tactical hedge funds, half of the historical risk premium is explained by the factor model. (1) Peter C.B. Phillips. Shu•Ping Shi and Jun Yu. "Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the• 500.- International Economic Review. Oct 28. 2015. Source: Investment Strategy Group, Bloomberg. 18 EFTA00793138 Bitcoin's Recent Performance is Suggestive of Bubble Territory Investment Management Division titnantan Sachs Bitcoin Performance in the Context of ISG Bubble Indicator •,.* si• %t• 4, 4> 4, •:) 4: .0 <40 40 to% 4# 4/ 470 0 • A bubble-detection test that measures explosive price behavior based on the 500's price-to-dividend ratio' suggests only a 16% probability that the US stock market is currently in a bubble. • Bitcoin's price performance, on the other hand, suggests the asset has been in bubble territory since early this year. (1) Peter C.B.Philrcs. Shu•Ping Shi and Jun Yu. "Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the 500.' International Economic Review. Oct 28.2015. Source: Investment Strategy Group, Bloomberg. 19 EFTA00793139 Key Cryptocurrency Risks Investment Management Division tglgia" • In addition to their extreme volatility, cryptocurrencies are vulnerable to: — Hacking of Exchanges — Unintentional Coding En-or — Government Regulation — Central Bank Disruption — Developments in Quantum Computing (which would increase success of private key hacking) Source: Investment Strategy Group. 20 EFTA00793140 The Cryptocurrency Infrastructure is Young and Susceptible to Hacking Investment Management Division Goldman Sachs a Timeline of Major Cryptocur ency Hacks and Amount Stolen BitFloor - 24,000 BTC BIPS - 1.295 BTC Mt Gox - 75,000 BTC Poloniex - undisclosed BTC - Canadian Bitcoins - undisclosed BTC • Coinapult - 150 BTC Bitfinex -1.500 BTC • Scrypt.CC - undisclosed BTC Bitfinex - $65mil - Gatecoin - $2mil aternity blockchain - undisclosed Edgeless Casino - undisclosed Parity (Ethereum) - -$350mil Allinvain - 25.000 BTC - Bitcoin Savings and Trust — 46.703 BTC Inputs.io — 4.100 BTC - Picostocks — 6,000 BTC excoin — 1,000 BTC • Bitcurex — undisclosed BTC itStamp — 18,866 BTC • BTER — 7,170 BTC • Purse.io — 10,235 BTC ryptsy — 13,000 BTC - Cointrader — undisclosed BTC • DAO - $55m II CoinDash - $7mil • Swarm City- $32.6n111 •9ithumb- • Veritaseum -$8.4mil ■ Although cryptocurrencies cannot be spent without control of the corresponding private keys, care must be taken to protect those private keys. Many bitcoin owners allow exchanges to custody their private keys, which leaves them vulnerable: — If hackers are able to access owners' private keys, they can deplete owners' digital wallets. — As of August 2016, Reuters reported that a third of bitcoin exchanges had been hacked.' — Ethereum's recent Parity hack is the first time a coding error has resulted in a loss of funds. ■ Estimates vary but suggest that hackers have stolen at least several hundred million dollars of cryptocurrencies. (1) Source: Investment Strateov Group. oublic news sources. See appendix for list of articles. 21 EFTA00793141 Cryptocurrencies' Legal and Regulatory Status Remains Uncertain Investment Management Division tioltlinart Sachs Switzerland Singapore Japan United Kingdom United States Russia China Illustrative Acceptance of Cryptocurrencies 1 • • • • • • Cryptocurrencies' Status Assets, not Securities Assets, not Securities • FINMA Key Regulator • Monetary Authority of Singapore Recognized as legal tender (Bitcoin only) • Financial Services Agency Private Currency - Commodities, potentially securities (SEC has not yet made determination) — IRS treats as property for tax purposes (Exchanges, however, are not required to create 1099s). Financial instruments, not currency • Financial Conduct Authority • SEC • CFTC • OCC • 50 States • Central Bank of Russia • Russian Finance Ministry Non-monetary digital asset • People's Bank of China ■ The cryptocurrency world operates across geographic and jurisdictional borders, creating ambiguity as to its legal status. ■ Individual countries have taken differing views on cryptocurrencies. (1) Data according to Autonomous NEXT #Token Mania (July 2017) Source: Investment Strategy Group. 91 EFTA00793142 Central Banks Have Begun Exploring Cryptocurrency Options Investment Management Division Goldman Sachs 1. Central Bank Current State 2. Illustrative Potential State: Central Bank Cryptocurrencles ■ Sovereign central banks have begun exploring cryptocurrency options. ■ A retail central bank cryptocurrency would effectively give the public access to accounts at the central bank with the ability to transfer payments peer-to-peer. ■ Cryptocurrency proposals are being considered by several central banks, including Singapore's MAS, China's PBOC, Russia's Central Bank, Sweden's Riksbank and Ecuador's Banco Central. ■ A successful central bank cryptocurrency could substantially reduce fraud and tax evasion. Source: Investment Strategy Group. 'Central Bank Cryptocurrencies."Monen Bech. Rodney Gairatt. Bank of International Settlements. 23 EFTA00793143 Central Bank Cryptocurrencies Could Substantially Reduce Fraud Investment Management Division Goldman Sachs "Say there's a grant to Nigeria for health stuff—if it's digital money, they can track that it was paid to a certain person and when it was paid out. Then you can audit later and say, `Did that really happen?' You don't want to tell donors that three percent went astray. Now that there's digital traceability in a place like Nigeria, where corruption is a huge problem, we can bring that down. A lot of the optimism we have at the foundation about disease, education and financial services is because we're sitting on top of a digital miracle." - Bill Gates, September 25, 2017 Source: Investment Strategy Group. "Brain Trust: A Rate Joint Interview with Microsoft CEO Satya Nadella and Bill Gates." The Wall Street Journal. September 25. 2017. 24 EFTA00793144 Key Takeaways Investment Management Division Q:Plga" • Blockchain technology, which underlies cryptocurrencies, is revolutionary, and likely to have many applications. • Cryptocurrencies are currently too volatile to be a medium of exchange, unit of account, or store of value, and have many vulnerabilities. • The cryptocurrency ecosystem will evolve substantially over time. • The current incarnation of cryptocurrencies is unlikely to persist, but we expect central bank digital currencies to prevail. Source: Investment Strategy Group. 25 EFTA00793145 Goldman Sachs Investment Management Division Economic and Market Monitors EFTA00793146 Economics Monitor Investment Management Division %tan US Labor Market Data Period Actual Survey Prior Revised European PMI Data Period Actual Survey Prior Revised Sep 6.093 6,090 Oct F 56.0 55.9 55.9 JOLTS Job Openings (k) 6,075 6,082 Markit Eurozone Composite PMI Initial Jobless Claims (k) 4-Nov 239 232 229 MarkitiBME Germany Composite PMI Oct F 56.6 56.9 56.9 Continuing Claims (k) 28-Oct 1,901 1,885 1,884 Markit France Composite PMI Oct F 57.4 57.5 57.5 MarkiVADACI Italy Composite PMI Oct 53.9 54.3 54.3 US Consumer Sentiment Period Actual Survey Prior Revised Markit Spain Composite PMI Oct 55.1 54.6 56.4 U. of Mich. Sentiment NovP 97.8 100.8 100.7 U. of Mich. 5-10 Yr Inflation NovP 2.5% •- 2.5% European Activity Data Period Actual Survey Prior Revised Eurozone Retail Sales YoY Sep 3.7% 2.8% 1.2% 2.3% China Activity Data Period Actual Survey Prior Revised Italy Retail Sales YoY Sep 3.4% 0.5% -0.5% -0.1% Foreign Reserves Oct 3,109 3,110 3,109 Germany Industrial Prod. W DA YoY Sep 3.6% 4.5% 4.7% 4.6% Exports MY Oct 6.9% 7.1% 8.1% 8.0% France Industrial Production VoY Sep 3.2% 3.1% 1.1% 1.0% Imports YoY Oct 17.2% 17.0% 18.7% 18.6% Italy Industrial Production WDA YoY Sep 2.4% 4.8% 5.7% 5.8% GPI VoY Oct 1.9% 1.8% 1.6% Spain Industrial Output SA YoY Sep 3.4% 3.1% 1.8% 1.9% ■ The US labor market continues to tighten; the small miss in claims is largely explained by Puerto Rico. ■ Chinese trade growth moderated; deals announced during President Trump's visit are unlikely to reduce trade deficit. ■ Eurozone data came in mixed relative to consensus expectations, but still points to above-trend growth in the region. Source: Investment Strategy Group. Bloomberg. 27 EFTA00793147 Markets Monitor Investment Management Division tialthnan Sachs 1Y Price Range 11)14:2017 WTD Last Week' YD lY Price Range 11/4/2017 WTD Last Week' YTD MI 500 • 2.579 -0.1% -02% 152% MSCI AC World • 573 -0.4% -OA% 14.6% Cons Disc • 738 0.4% 0.7% 13.9% MSCI EAFE • 1,148 -0.8% -1.1% 10.7% Cons Staples 564 0.9% 2.1% 6.0% TOPIX • 1.779 -12% 0.4% 17.1% • Energy 503 -2.1% 1.1% -9.3% FTSE 100 • 7.414 -02% -1.7% 3.8% _4 Financials • 433 0.1% -2.7% 12.0% DAX 13.033 -0.7% -2.6% 13S% Health Care • 936 -0.3% -0.5% 17.4% IBEX35 4a 9.990 -1.0% -2.6% 62% Industrials • 596 -0.9% -1.1% 10.7% Euro Sto>c< 50 3.556 -1.0% -2.6% 8.1% Into Tech • 1.106 -0.2% 0.0% 36.9% MSCI BA 60,154 -0.7% 02% 262% Materials • 362 -0.6% -1.2% 15.9% MSCI China 88 -0.7% 2.4% 50.7% Real Estate • 209 0.1% 3.2% 9.8% MSCI India 1.214 -1.3% -1.6% 23S% Telecom • 142 -1.7% -1.3% -19.8% MSCI Brazil • 240.688 -1.9% -2.3% 15A% Utilities 288 2.4% 0.4% 16.6% MSCI Russia • 969 -0.3% 5.4% -3.0% NASDAQ _.* 6,738 -02% -02% 252% USD Trade Weighted • 81.16 -0.3% -0.5% -7.0% VIX .__)._ 11.59 0.30 2.15 (2.45) EUR • 1.1798 1.1% 0.5% 122% 2yr Meld --•-• 1.69% 0.03% 0.04% 0.50% JPY • 113.46 0.1% 0.5% 3.1% 10yr Yield --40- 2.37% -0.03% 0.07% -0.07% GBP • 1.3165 -02% 0.9% 6.7% 30yr Yield -49-e- 2.83% -0.05% 0.07% -0.24% EM Currencies' • -02% 0.0% 7.6% 30yr AAlield 3.83% -0.05% 0.14% -0.33% CNH • 6.6357 0.4% -0.4% 5.1% ♦ HY Spread (bps) 360 0 21 -49 WTI Crude Oil 55.70 -1.8% 2.0% 3.7% LIBOR • 1.42% 0.00% 0.02% 0.42% Gold Spot Price • 1.280 0.4% 0.5% 11.1% 1Y Low * 1Y High Current • Equities were softer as concerns around tax reform outweighed a mostly positive Q3 earnings season. Bond yields rose globally and the dollar weakened, while oil continued to rally on geopolitical concerns. • Based on the MSCI EM Currency index. Source: Investment Strategy Group. Bloomberg. 28 EFTA00793148 bacfioldhsman Investment Management Division Appendix & Disclosures EFTA00793149 Appendix Investment Management Division Goldman Sachs • /MinyaIn • • BitFloor • • Bitcoin Savings and Trust • • BIPS • • Inputsio • • Picostocks• https:/ibitcointakorafindex.phcatouic=576337#post toe 58 • Mt. Gox • Poloniex • • Canadian Bitcoins • • Flexcoin • Bitcurex • • Coinapult • Bittinex • Scrypt.CC • • BitStamp • BTER • Purse.io • Bittinex • • Gatecoin • Cryptsy • • Cointrader • DAG • • Aeternity blockchain • Edgeless Casino - • Parity (Ethereum) • CoinDash • Swarm City • Bithumb • Veritaseum - 30 EFTA00793150 Important Information Investment Management Division Goldman Sachs Investment Strategy Group. The Investment Strategy Group (ISG) is part of the Investment Management Division of Goldman Sachs. The Investment Strategy Group (ISG) is focused on asset allocation strategy formation and market analysis for Private Wealth Management. Any information that references ISG, including their model portfolios. represents the views of ISG, is not research and is not a product of Global Investment Research. If shown. ISG Model Portfolios are provided for illustrative purposes only. Your actual asset allocation may look significantly different based on your particular circumstances and risk tolerance. Tactical tilts may involve a high degree of risk. No assurance can be made that profits will be achieved or that substantial losses will not be incurred. Economic and market forecasts presented herein reflect our judgment 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. If applicable: a copy of Goldman Sachs Global Investment Research (GIR) Report used for GIR forecasts is available upon request. Not a Municipal Advisor. Except in circumstances where Goldman Sachs expressly agrees otherwise. Goldman Sachs is not acting as a municipal advisor and the opinions or views contained in this presentation are not intended to be, and do not constitute, advice. including within the meaning of Section 15B of the Securities Exchange Act of 1934. Entities Providing Services. This material has been approved for issue in the United Kingdom solely for the purposes of Section 21 of the Financial Services and Markets Act 2000 by Goldman Sachs International, Peterborough Court. 133 Fleet Street. London EC4A 2BB: by Goldman Sachs Canada. in connection with its distribution in Canada: in the United States by Goldman Sachs & Co. LLC: in Hong Kong by Goldman Sachs (Asia) L.L.C.: in Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in Japan by Goldman Sachs (Japan) Ltd; in Australia by Goldman Sachs Australia Ply Ltd (ACN 006 797 897); and in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 19862165W). In Australia, this document, and any access to it. is intended only for a person that has first satisfied Goldman Sachs that: the person is a Sophisticated or Professional Investor for the purposes of section 708 of the Corporations Act of Australia: and the person is a wholesale client for the purpose of section 761G of the Corporations Act of Australia. To the extent that Goldman Sachs & Co. LLC (GSCo). Goldman Sachs (Asia) L.L.C. (GSALLC). and/or Goldman Sachs International (GSI) are providing financial services in Australia. GSCo. GSALLC and GSI are exempt from the requirement to hold an Australian financial services licence for the financial services they provide in Australia. GSCo is authorized and regulated by the U.S Securities and Exchange Commission under US laws; GSALLC is regulated by the Hong Kong Securities and Futures Commission under Hong Kong laws: and GSI is regulated by the UK Financial Conduct Authority and Prudential Regulation Authority. Investment Risks. Risks vary by the type of investment. For example. investments that involve futures, equity swaps. and other derivatives. as well as non-investment grade securities. give rise to substantial risk and are not available to or suitable for all investors. We have described some of the risks associated with certain investments below. Additional information regarding risks may be available in the materials provided in connection with specific investments. You should not enter into a transaction or make an investment unless you understand the terms of the transaction or investment and the nature and extent of the associated risks. You should also be satisfied that the investment is appropriate for you in light of your circumstances and financial condition. Money Market Funds. Investments in money market funds are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in money market funds. U.S. Registered Mutual Funds / ETFs or Exchange Traded Notes (ETNs). A Prospectus and, if available, a summary prospectus for the applicable mutual fund, ETF or ETN containing more information may be obtained from your Private Wealth Management team. Please consider a fund's investment objectives, risks, charges and expenses, and read the summary prospectus or the Prospectus carefully before investing, as they contain 31 this and other information about the mutual fund. EFTA00793151 Important Information Investment Management Division Goldman Sachs You may obtain documents for ETFs or ETNs for free by 1) visiting EDGAR on the SEC website at http://www.sec.govt 2) contacting your Private Wealth Management team: or 3) calling toll-free at 1-866-471-2526. Unlike traditional mutual funds, ETFs can trade at a discount or premium to the net asset value and are not directly redeemable by the fund. You should understand the risks associated with leveraged or inverse ETFs, ETNs or commodities futures-linked ETFs before investing. These types of securities may experience greater price movements than traditional ETFs and may not be appropriate for all investors. Most leveraged and inverse ETFs or ETNs seek to deliver multiples of the performance (or the inverse of the performance) of the underlying index or benchmark on a daily basis. Their performance over a longer period of time can vary significantly from the stated daily performance objectives or the underlying benchmark or index due to the effects of compounding. Performance differences may be magnified in a volatile market. Commodities futures-linked ETFs may perform differently than the spot price for the commodity itself, including due to the entering into and liquidating of futures or swap contracts on a continuous basis to maintain exposure (i.e., -rolling") and disparities between near term future prices and long term future prices for the underlying commodity. You should not assume that a commodity -futures linked ETF will provide an effective hedge against other risks in your portfolio. • Alternative Investments. Alternative investments may involve a substantial degree of risk, including the risk of total loss of an investor's capital and the use of leverage, and therefore may not be appropriate for all investors. Private equity. private real estate. hedge funds and other alternative investments structured as private investment funds are subject to less regulation than other types of pooled vehicles and liquidity may be limited. Investors in private investment funds should review the Offering Memorandum, the Subscription Agreement and any other applicable disclosures for risks and potential conflicts of interest. Terms and conditions governing private investments are contained in the applicable offering documents, which also include information regarding the liquidity of such investments, which may be limited. • Emerging Markets and Growth Markets. Investing in the securities of issuers in emerging markets and growth markets involves certain considerations, including: political and economic conditions, the potential difficulty of repatriating funds or enforcing contractual or other legal rights, and the small size of the securities markets in such countries coupled with a low volume of trading, resulting in potential lack of liquidity and in price volatility. • Equity Investments. Equity investments are subject to market risk, which means that the value of the securities may go up or down in respect to the prospects of individual companies, particular industry sectors and/or general economic conditions. The securities of small and mid-capitalization companies involve greater risks than those associated with larger, more established companies and may be subject to more abrupt or erratic price movements. • Fixed Income. Investments in fixed income securities are subject to the risks associated with debt securities generally, including credit/default, liquidity and interest rate risk. Any guarantee on an investment grade bond of a given country applies only if held to maturity. • Non-US Securities. Investing in non-US securities involve the risk of loss as a result of more or less non-US government regulation, less public information, less liquidity and greater volatility in the countries of domicile of the issuers of the securities and/or the jurisdiction in which these securities are traded. In addition, investors in securities such as ADRs/GDRs, whose values are influenced by foreign currencies, effectively assume currency risk. • Real Estate. Investments in real estate involve additional risks not typically associated with other asset classes, such as sensitivities to temporary or permanent reductions in property values for the geographic region(s) represented. Real estate investments (both through public and private markets) are also subject to changes in broader macroeconomic conditions, such as interest rates. • Structured Investments. Structured investments are complex, involve risk and are not suitable for all investors. Investors in structured investments assume the credit risk of the issuer or guarantor. If the issuer or guarantor defaults, you may lose your entire investment. even if you hold the product to maturity. Structured investments often perform differently from the asset(s) they reference. Credit ratings may pertain to the credit rating of the issuer and are not indicative of the market risk associated with the structured investment or the reference asset. Each structured investment is different, and for each investment you should consider 1) the possibility that at expiration you may be forced to own the reference asset at a depressed price, 2) limits on the ability to share in upside appreciation; 3) the potential for increased losses if the reference asset declines; and 4) potential inability to sell given the lack of a public trading market. 32 EFTA00793152 Important Information Investment Management Division (juldman Sin!: Options. Options involve risk and are not suitable for all investors. The purchase of options can result in the loss of an entire investment and the risk of uncovered options is potentially unlimited. Please ensure that you have read and understood the current options disclosure document before entering into any standardized options transactions. The booklet entitled Characteristic and Risk of Standardized Options can be obtained from our sales representatives or at Transaction costs may be significant in option strategies that require multiple purchases and sales of options. such as spreads. Supporting documentation for any comparisons. recommendations, statistics, technical data, or other information will be supplied upon request. • Buying Options - Investors who buy call (put) options risk loss of the entire premium paid if the underlying security finishes below (above) the strike price at expiration. • Selling Options - Investors who sell puts risk loss of the strike price less the premium received for selling the put. OTC Derivatives. To understand clearly the terms and conditions of any OTC derivative transaction you may enter into. you should carefully review the Master Agreement. including any related schedules, credit support documents. addenda and exhibits. You may be requested to post margin or collateral at levels consistent with the internal policies of Goldman Sachs to support written OTC derivatives. Prior to entering into an OTC derivative transaction you should be aware of the below general risks associated with OTC derivative transactions: — Liquidity Risk: There is no public market for OTC derivative transactions and, therefore. it may be difficult or impossible to liquidate an existing position on favorable terms. — Risk of Inability to Assign: OTC derivative transactions entered into with one or more affiliates of Goldman Sachs cannot be assigned or otherwise transferred without Goldman Sachs' prior written consent and. therefore. it may be impossible for you to transfer any OTC derivative transaction to a third party. — Counterparty Credit Risk: Because Goldman Sachs may be obligated to make substantial payments to you as a condition of an OTC derivative transaction, you must evaluate the credit risk of doing business with Goldman Sachs. Depending on the type of transaction, your counterparty may be Goldman Sachs & Co. LLC, a registered U.S. broker-dealer. or other affiliate of The Goldman Sachs Group, Inc. As a broker dealer regulated by the Securities and Exchange Commission (-SEC), Goldman Sachs & Co. LLC is subject to net capital, financial responsibility rules. and other regulatory requirements designed to protect customer assets. Other subsidiaries of The Goldman Sachs Group. Inc. may not be registered as a U.S. broker dealer and therefore are not be subject to similar SEC regulation. — Pricing and Valuation: The price of each OTC derivative transaction is individually negotiated between Goldman Sachs and each counterparty and Goldman Sachs does not represent or warrant that the prices for which it offers OTC derivative transactions are the best prices available. You may therefore have trouble establishing whether the price you have been offered for a particular OTC derivative transaction is fair. OTC derivatives may trade at a value that is different from the level inferred from interest rates, dividends and the underlyer. The difference may be due to factors including, but not limited to. expectations of future levels of interest rates and dividends. and the volatility of the underlyer prior to maturity. The market price of the OTC derivative transaction may be influenced by many unpredictable factors. including economic conditions. the creditworthiness of Goldman Sachs. the value of any underlyers, and certain actions taken by Goldman Sachs. — Early Termination Payments: The provisions of an OTC derivative transaction may allow for early termination and. in such cases. either you or Goldman Sachs may be required to make a potentially significant termination payment depending upon whether the OTC derivative transaction is in-the-money at the time of termination. — Indexes: Goldman Sachs does not warrant. and takes no responsibility for, the structure. method of computation or publication of any currency exchange rates. interest rates. indexes of such rates. or credit, equity or other indexes, unless Goldman Sachs specifically advises you otherwise. 33 EFTA00793153 Important Information Investment Management Division Goldman harts Indices. Any references to indices. benchmarks or other measure of relative market performance over a specified period of time are provided for your information only. 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. Past performance is not indicative of future results which may vary. • • Indices (MI 500 Index). "Standard & Poor's®", 'MS" and -M 500® are registered trademarks of Standard & Poor's Financial Services LLC (-Standard & Poor's") and are licensed for use by The Goldman Sachs Group. Inc. and its affiliates. The securities are not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's does not make any representation regarding the advisability of investing in the securities. Dow Jones Indices (DJ Industrial Average).. is a registered trademark of Standard & Poor's Financial Services LLC (-M") and Dow Jones®. [DJIA0] [Dow Jones Industrial Average®] are trademarks of Dow Jones Trademark Holdings LLC (-Dow Jones'). The trademarks have been licensed to IM Dow Jones Indices LLC and its affiliates and have been sublicensed for use for certain purposes by The Goldman Sachs Group. Inc. The Dow Jones Industrial Average is a product of Dow Jones Indices LLC and/or its affiliates, and has been licensed for use by The Goldman Sachs Groiaanc. The securities are maonsored, endorsed. sold or promoted by III Dow Jones Indices LLC, Dow Jones, or any of their respective affiliates (collectively. '= Dow Jones Indices'). Dow Jones Indices make no representation or warranty, express or implied, to the owners of the securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly or the ability of the Dow Jones Industrial Average to track general market performance. MSCI Indices (MSCI EAFE Index). The MSCI indices are the exclusive property of MSCI Inc. (-MSCI"). MSCI and the MSCI index names are service mark(s) of MSCI or its affiliates and are licensed for use for certain purposes by the Issuer. These securities. based on such index. have not been passed on by MSCI as to their legality or suitability. and are not issued. sponsored. endorsed, sold or promoted by MSCI. and MSCI bears no liability with respect to any such notes. No purchaser, seller or holder of the notes. or any other person or entity, should use or refer to any MSCI trade name. trademark or service mark to sponsor. endorse. market or promote the notes without first contacting MSCI to determine whether MSCI's permission is required. Under no circumstances may any person or entity claim any affiliation with MSCI without the prior written permission of MSCI. The prospectus contains a more detailed description of the limited relationship MSCI has with the Issuer and any related securities. • Russell Indices (Russell 2000 Index). The Russell 2000® Index is a trademark of Russell Investment Group ("Russell') and has been licensed for use by The Goldman Sachs Group. Inc.. The securities are not sp