Goldman Sachs Cites Cryptocurrency ‘Mania’ As Second Half Risk

Goldman Sachs is warning that so-called “cryptocurrency mania” is among the six factors that will impact the markets for the remainder of this year.

According to a report in CNBC citing the Wall Street bank’s mid-year economic outlook, Goldman Sachs warned of declines to come to the cryptocurrencies market. “We expect further declines in the future given our view that these cryptocurrencies do not fulfill any of the three traditional roles of a currency,” Sharmin Mossavar-Rahmani, Goldman’s chief investment officer of the private wealth management group, said in the report published late last week and covered by CNBC.

Goldman Sachs also reiterated its comments from January when it said the rise in bitcoin to nearly $20,000 late last year “dwarfed” the mania seen during the dot.com boom, which was followed by the dot.com bust. Bitcoin, the leading cryptocurrency, was trading around $7,470 late last week and has lost around 60 percent of its value since hitting its all-time high in late December.  “Our 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,” Mossavar-Rahmani said in the report, noted CNBC. The strategist also pointed to the value of cryptocurrencies compared to the total of the financial markets. “Such declines will not negatively impact the performance of financial assets because cryptocurrencies represent just 0.3 percent of world GDP as of mid-2018,” she said. “In fact, we believe that they garner far more traditional media and social media attention than is warranted.”

Currencies traditionally have several functions — none of which cryptocurrency arguably fills. For starters, currencies are typically defined as a store of value, a medium of exchange and a unit of measurement — and bitcoin doesn’t exactly meet those definitions. It’s hard to say that bitcoin is a store of value because of its wild price swings, for example, and it can be hard to exchange bitcoin due to slow transaction speeds. In addition, it’s hard to use bitcoin as a unit as measurement because its supply and value keep changing.