Merchant bank Goldman Sachs is not optimistic about the future of Bitcoin. Not only does its mid-year economic report predict further price decline, but it also identified the “cryptocurrency mania” as a potentially destabilising influence on markets for the rest of 2018.
Bitcoin may have lost more than half of its value so far this year but Sharmin Mossavar-Rahmani, chief investment officer for Goldman Sachs and the author of the report, believes that it could still drop further. “We expect further declines in the future,” she wrote, “given our view that these cryptocurrencies do not fulfill any of the three traditional roles of a currency.“
Goldman Sachs’ last full-year outlook report, published in January, claimed that Bitcoin’s rise to $20,000 in December 2017 “dwarfed” even the irrational exuberance of the dot-com bubble. Following the 60% loss in its value, Mossavar-Rahmani said that her team’s view that “cryptocurrencies would not retain value in their current incarnation remains intact and, in fact, has been borne out much sooner than we expected.”
The report is both pessimistic about cryptocurrencies’ potential, and dismissive of the attention paid to them. The total value of the crypto market is tiny compared to that of the financial markets as a whole. Therefore any falls in price, “will not negatively impact the performance of financial assets because cryptocurrencies represent just 0.3 percent of world GDP as of mid-2018.” Indeed, “we believe that they garner far more traditional media and social media attention than is warranted.”
Given the apparent insignificance of the crypto markets, it seems strange that they are included in the report along with terrorism and rising global tensions as one of the six factors which could potentially destabilise economic growth. Perhaps Goldman Sachs is more frightened of the potential of cryptocurrencies than it is willing to admit.
Image From Shutterstock