Goldman Sachs Private Wealth Management division while addressing their highest profile clients in a lengthy document warned them about the danger of investing in cryptocurrencies. The banking giants believe that the rise of bitcoin and other cryptos last year is an indication that the whole market is in an economic bubble.
In the 108 page document, the bank made mention of the Dutch “Tulipmania” of the seventh century, as well as the “dot-com” bubble of the turn of this century. They also went further to highlight the increase in the price of the stocks of firms that have associated themselves with the crypto world.
The document stated that “The mania surrounding cryptocurrencies is probably even better illustrated by the price surges seen in companies that announce some type of affiliation with blockchain technology or cryptocurrencies.”
Goldman Sachs believes that the recent increase in share percentage by five figures for Long Blockchain (LBCC) (formerly Long Island Ice Tea Group) and the Crypto Company (previously a sports bra company) are both clear evidence of an economic bubble.
In the document, Sharmin Mossavar-Rahmani and Brett Nelson (both senior officials at the Investment Strategy Group Goldman Sachs) acknowledged that there are some practical uses of the rapidly growing blockchain technology, which is behind the growth of cryptos. The duo reiterated the enthusiasm currently witnessed amongst most central bankers of the world regarding the blockchain technology. They are of the view that Bitcoin doesn’t provide enough of the advantages that other cryptos could potentially deliver. They mentioned that “We think the concept of a digital currency that leverages blockchain technology is viable given the benefits it could provide: ease of execution globally, lower transaction costs, reduction of corruption since all transactions could be traced, the safety of ownership, and so on. But bitcoin does not provide any of these key advantages. Quite the contrary. Not only is there no ease of execution, but settlement often takes as many as ten days. In late 2017, the price discrepancies among 17 US exchanges for one bitcoin amounted to $4,156, or about a 31% difference between the high and low prices. Transaction costs have skyrocketed, and frequent hacking has wiped out entire wallets and exchanges of their bitcoin holdings.”
Mossavar-Rahmani and Nelson also mentioned their skepticism towards the world’s leading crypto Bitcoin and other altcoins, doubting if they will be able to maintain their current value in the long run. They also believe that the cryptos would not be able to replace the greenback as a global reserve currency.