With the fall of cryptocurrencies and their sluggish growth in early 2018 has come the ever increasing moans and warnings about the crypto bubble getting ready to finally lose its gas and then “poof”, be no more. Goldman Sachs has definitely not left itself out in the speculating/warning and forecasting of the worst that could happen to cryptocurrency investors. Yesterday, Goldman Sachs made a statement of caution to the public which highlighted that indeed there was now “no doubt” the cryptocurrency world was definitely in “bubble territory” now.
This isn’t just one of the many speculations that people make about cryptocurrencies like bitcoin possibly trading at over $50,000 at the end of 2018. Goldman says that the “meteoric rise (of bitcoin) in a short time has dwarfed the rise seen during the dot-com bubble.” The financial firms also believes that the rise of cryptocurrencies in general has even exceeded the known levels of bubbles in any financial market – even beyond the “tulipmania” of the Netherlands in the three years of 1634-1637.
Why Goldman Is Right About This Cryptocurrency Bubble
Bitcoin is trading today still below $12,000, struggling to get past that figure after its historic fall from grace at the end of last year. However the cryptocurrency appears to be performing even better than what most doomsday speculations foretold. This however is seen to be one of the major strengths of cryptocurrencies, that is, being able to stabilise around certain figures despite their generally volatile nature. Within a space of just one year bitcoin’s growth has been by a factor of more than 10. It started 2017 a little below thousand dollars and rise to a whopping $19,000, even though it dropped afterwards.
Then you have altcoins. Ether also started 2017 below $300 and ended the year at over $700. On Monday it traded above $1,300 but later ended the day with $943 .Ripple, presently the world’s third largest cryptocurrency by market cap, also rose from just a penny to $3.30 between January 2017 and January 2018.
Ether Is An Even Bigger Bubble
Ether is the token used by the Ethereum blockchain network, and is one of the most stable cryptocurrencies. Goldman Sachs believes that per the rate of Ether’s price movement as against traditional stocks and tulips and even bitcoin itself, Vitalik’s token is an even bigger bubble. This is because they record that the rises of the others are just non-existent, and Goldman Sachs declares this to be rather “astonishing”. In a report to it’s clients, it stated that
“While we do not know if bitcoin or any other cryptocurrency will double or triple from prevailing prices, we do not believe that these cryptocurrencies will retain their value in the long run in their current incarnation,”
Perhaps what is even more striking and intriguing about this whole Goldman Sachs – Cryptocurrency bubble issue is the fact that the financial institution has plans of introducing a cryptocurrency trade option. Of all the pessimists, Goldman Sachs should be the last to weigh in this option but surprisingly they are. The bank is considering the possibility of a trading option for bitcoin and other altcoins.
Goldman Sachs also stated in the report its notice of how several companies had risen their stocks by just adding blockchain to their names or adopting the blockchain network to be integrated into their business operations. The report compared this cryptocurrency bubble to that of the tulip mania after which Theodorus Schrevelius wrote “our descendants doubtless will laugh at the human insanity of our Age, that in our times, the tulip flowers have been so revered”.
This still does not rule out the fact that Goldman is joining the large number of firms that are adopting the blockchain technology which powers bitcoin and major altcoins like Litecoin, Ethereum etc. This is definitely a real world instance of the “paradox of reality in book-ville world” .This is believed by many to be because of the effectiveness of the blockchain system as it is almost impossible to forge a transaction. Simply put, the blockchain network reduces the chances of corruption in any financial transaction. The report stated why they maintained their stand in this interest in blockchain
“We think the concept of a digital currency that leverages the blockchain technology is viable given the benefits it could provide: ease of execution globally, lower transaction costs, reduction of correction since all transactions could be traced, safety of ownership, and so on. But bitcoin does not provide any of these qualities.”
Other financial institutions that have expressed a high level of interest in blockchain technology are British multinational company HSBC and UBS of the Swiss.
The investment bank has weighed all its options in terms of what it can achieve with bitcoin and has come to a conclusion and an intellectual one at that. The bank believes that bitcoin isn’t a good store of value due to its volatility. However, they did state that cryptocurrencies could be a very feasible option for markets in which conventional means of money supply aren’t so adequate.
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