A New Bitcoin Warning from Goldman SachsJanuary 23, 2018
As months go in the cryptocurrency world, the worry and trepidation with which Goldman Sachs perceives the same ecosystem seem to be only becoming stronger. After one other financial industry officials publicly stated that bitcoin is, more or less, a hoax aimed at scamming people, the financial company is still dead set on showing everyone how big of a problem cryptocurrencies still are.
Not only has that, but now, the banking firm began producing analysis that underlines the same ideas with data. Or, at least, that is what their analysis are saying now that a new report has been published. For many cryptocurrency investors, supporters and developers, this comes as nothing new and something that many began actively ignoring.
However, with the same approach, anyone stands to potentially miss out on any valid data that could be more than relevant. All the hostilities aside, Goldman Sachs is a powerhouse in the financial domain that not many dared to brush aside in the previous decades. The cryptocurrency domain should approach the new report in the same manner and try to disseminate what is relevant information and what is more than evident opposition from a traditional organization to a disruptive industry.
The Biggest Bubble Ever
In the past two months, many in the crypto community went to great length to try to explain why the concept of detail currencies is not a traditional economic bubble. Here, the idea of super-high volatility has showcased against the concept of a bubble burst that simply puts an end to a particular business field, aside from whipping away a lot of investor money.
It appears that these explanations and educational content that followed them did not resonate with many in Goldman Sachs. That is why the firm published a research letter that was sent to its investors.
In it, using an expectedly over-dramatic manner, it stated that the bitcoin bubble is far larger than the dot-com one. Not only is it larger from the crash of the late 1990’s, it is also larger than the Dutch tulip mania, which is a daunting task for any potential economic downturn.
The sharpness with which the Dutch tulip market fell is really impressive even by today’s standards. Yet, Goldman Sachs experts believe that a much sharper and more impacting fall will commence once the bitcoin bubble begins to break.
Aside from the very eye-catching initial premise, the letter goes on to warn investors about the increase in cryptocurrency values. The data especially took the example of ether and bitcoin, but also those publicly traded companies that pivot with their business plan towards blockchain tech.
The report uses an example of The Crypto Company to show their point. The same company saw its stock price jump over 17,000 percent before the Securities and Exchange Commission had to stop its trading.
This can be broadly tied to the phenomena of companies changing their names (sometimes even their services) to add blockchain, which sees an immediate spike in their value. Some firms have been doing this to lampoon the whole concept of instant and blind cryptocurrency investment. Others, however, have been riding the same wave in a completely serious manner.
A Jab at Bitcoin
Goldman Sachs letter also took the opportunity to single-out bitcoin as something that tried to deliver a chance in the way financial dealing work but failed at its primary objectives. This is for the analysts especially odd, being that the enthusiasts should be distraught by now with the current state of this digital currency.
According to the letter, the idea of a digital currency that using blockchain tech is more than viable because of the benefits that come with it. These include easy global executions of transfers with low transaction costs (one of the reasons why BTC became so popular in the online betting community), along with the safety of ownership and hurdles for corruption.
But, Goldman Sachs report believes that bitcoin failed to provide any of these. It states that some transactions take as long as 10 days, while the value of the digital token varies greatly based on what exchange is used.
The differences in prices can go as high as $4,000 when BTC reached a price of about $12k at the end of 2017. At that moment, there was an over 31% difference between some exchanges, all of which are seen as valid participants in the wider crypto market.
Hazardous but Inconsequential
In spite of all of the negative observation about the cryptocurrency space, the report comes with one lighter note: it all does not matter in the big picture. According to Goldman Sachs, when the potential bursts of the bubble take place, it will be of no impact on the US or the global economy.
It states that the cryptocurrencies represent a small fraction of the US GDP (3.2%) and even smaller when it comes to the world (0.8%). For example, the dot-com bubble was a lot more worrying about the broader economic situation.
That is why the report’s authors stated that the collapse in bitcoin would produce any major negative effect on the financial markets or the global economy. The same goes for the relevance of the cryptocurrencies against the US dollar.
The Fine Print
While it is easy to dismiss anything coming from Goldman Sachs as a biased media campaign, there are many important elements of the letter. Firstly, the technical issues of the BTC network are true and valid, which is a new indicator that they should be resolved with the next step in the network’s evolution.
Also, it is true that digital currencies are seen and used primarily as commodities because of their incredible volatility. This means that the number of users did expand but their use is not what its creators intended it to be, which is a situation similar to other digital ventures like social media or eSports.
The conundrum is that any new users will only add to that volatility. There are no simple solutions for the commodity vs. currency dilemma, but it is an important subject. While the fine print of the Goldman Sachs letter does not ask for it to be solved, it helps in a sense by also shining a light on the need for something to be done about it.