Wall Street titan Goldman Sachs believes that bitcoin and other cryptocurrencies have become not just a bubble, but a really big one. It recently issued a warning about it to some if its richest clients.
The bank’s Private Wealth Management division serves clients that have no less than $10 million invested with the firm. Every year this division sends its clients a document detailing what the company believes is on the horizon in the coming year. This year it sent out a document entitled “(Un)steady as She Goes,” which discussed cryptocurrencies and their current popularity.
Brett Nelson and Sharmin Mossavar-Rahmani, who wrote the document, said that the craze over cryptocurrencies has created a bubble that has exceeded even some of the biggest bubbles in the history of the world. They mentioned two bubbles in particular that cryptocurrencies have now dwarfed: the dot com bubble of the late 20th century, and the Dutch tulip bubble of the 17th century. They further produced charts to prove their assertion.
The two writers also described how the shares in a number of little known companies have recently surged after they announced some connection to either cryptocurrencies or blockchain technology, which is the technology behind cryptocurrencies. They gave two examples of this: Long Blockchain Corp, which had previously been a tea company called the Long Island Ice Tea Corp., and another company called The Crypto Company.
In spite of what they consider irrational mania, the authors of the document concede that cryptocurrencies do provide certain benefits, at least conceptually. These benefits, they say, include inexpensive transaction fees, fast transaction processing and transaction transparency and safety. However, the two insist that bitcoin, in practice, provides none of these benefits. They say that transaction fees have skyrocketed while processing times have increased considerably. They also pointed out instances of major fraud.
The document went on to say that Goldman Sachs doesn’t believe that cryptocurrencies are a good long-term investment. Nor do they see cryptocurrencies replacing the U.S. dollar as the world’s reserve currency. They finally said that, if cryptocurrencies do plummet, they don’t believe that this would have a major effect on the economy or on other financial markets.