The financial institution Goldman Sachs has stated that the pioneer cryptocurrency, Bitcoin, looks like it is forming a more significant bubble than the bubble which took place over the course of the 90’s and culminated in the 2000 crash. The analysts from Goldman go further to state that the Bitcoin bubble may be more than the infamous tulip bubble as well.
Unsteady as she goes
Analysts from the Investment Strategy Group of Goldman Sachs published a report called Un(steady) as She Goes. This report or research letter, sent out to a specific clientele, made a couple of points in regards to the current market.
First, it described the year of 2017, discussing the growth and gains and how this is one of the most prolonged recovery periods in the post-WWII era, lasting nine years so far. They believe that there is a very low probability of an economic recession in the next two quarters and if the economy keeps running into the middle of 2019, it might fall under the category of being the longest recovery period ever.
The growth is not limited primarily to the U.S, varying levels of growth are also appreciated by 172 of 192 in the IMF’s, World Economic Outlook. The IMF believes that there will be the fewest number of countries facing recession so far.
Another highlight was the U.S equities market stating that equities returned 21.8% last year while emerging markets provided 31.0%. The strategists aimed to prove that the US equities market is not in a bubble.
While proving that equities are not in a bubble, they sought to prove that the emerging market of cryptocurrencies was in a bubble
The Goldman Sachs Evaluation of the Cryptocurrency market
The analysts touch on the aspect of cryptocurrencies and crypto affiliated stocks experiencing manic prices and wild exuberance. The researchers sought to cautioned investors that price movements in the prices of Ethereum and Bitcoin seemed to increase rapidly and discussed the effect of the mere mention of crypto integration in equities could cause a spike in stock prices.
An example of these crypto-affiliated companies would be Long Island Tea which transformed itself and said it would be now Long Blockchain, a move which allowed the company to see a significant increase in its share price.
Then another example could be restaurant chains like Hooters who’ve noted that they would also be having a blockchain integration and were able to enjoy an increase in the share price as well.
The investment banking firms team calls what’s happening in the market as manic and somewhat surprising. The team notes that the leading cryptocurrency, Bitcoin, has not yet met the goals that are mentioned in its whitepaper, to serve as a peer to peer electronic cash system.
Issuing a controversial statement:
“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, safety of ownership, and so on. But bitcoin does not provide any of these key advantages.”
They go further to state how one transaction that occurs in the Bitcoin payments network can take more than nine days and that there are discrepancies in the value of the leading cryptocurrency from one exchange to the other. They dived a little bit into the aspects of fees that are present in the system, noting that they could be high.
They make final notes on the matter by stating that when the bubble does eventually burst, they are confident that it will not affect economies of the United States or those of other nations.
A counter-argument can be made by cryptocurrency enthusiasts.
At the present moment, they might say the Bitcoin network in itself is secure, as the payment network in itself has not been attacked, but more, the third party services like wallet providers and exchanges, who have faced hacks.
Furthermore, those in the crypto industry might state that processing times and the issues of fees might be prevalent at times and could be resolved via technologies such as the lightning network and aspects like side chains. Implementations that are in the works this year.