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Goldman Sachs says Bitcoin out-bubbles tulips

Current incarnation of cryptocurrencies not lasting value, firm says

One thing about tulip bulbs, compared to Bitcoin: At least you can usually count on a pretty outcome. One thing about tulip bulbs, compared to Bitcoin: At least you can usually count on a pretty outcome.

Amid the continuing ups and downs of Bitcoin, Goldman Sachs in an outlook report for wealthy investors said there is no doubt that the cryptcurrency is a bubble outdoing the Dutch “tulipmania” of the 1600s and the dot.com era of this country’s tech sector.

In the January Outlook report of Goldman’s Investment Strategy Group, the firm cast a gimlet eye on Bitcoin as well as on Ether, another cryptocurrency.

The report characterized interest in cryptocurrencies at present as a “mania.”

Yo-yo coin?

Bitcoin’s price history, as reported by Coindesk.com, illustrates the volatility of cryptocurrencies, as follows, over one month. On Dec. 22 the price stood at $13,857.14. On Dec. 26 the price was $15,745.26. On Dec. 30 the price stood at $12,629.81. On Jan. 6 the price was $17,135.84. On Jan. 22 the price was $10,772.15.

Goldman stated that “we do not believe that these cryptocurrencies will retain their value in the long run in their current incarnation.”

The report quoted a contemporary historian on the tulip craze, Theodorus Schrevelius, writing in 1648, just over a decade after the tulip market price collapse: “Our descendants doubtless will laugh at the human insanity of our Age, that in our times, the tulip flowers have been so revered.”

The Goldman report didn’t damn the concept of cryptocurrencies, only the way they have worked thus far. The firm stated that a cryptocurrency using blockchain technology could be viable.

Among the potential advantages listed: ease of executing trades globally; lower transaction costs; reduction of corruption by making transactions traceable; and more.

However, the report stated, Bitcoin doesn’t provide any of those advantages currently. The report pointed to major price differences even among different exchanges; rising costs to trade in Bitcoin; and the risks of hacking wiping out Bitcoin holdings.

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Crypto versus the dollar, gold

The firm noted that some cryptocurrency enthusiasts have theorized that cryptocurrencies could replace the dollar as a global reserve currency

“Obviously,” the report said, “we view the unsteady cryptocurrencies as no match for the ‘Steady as She Goes’ dollar.”

The report noted that some gold enthusiasts may think that 2018 will prove the wisdom of investing in the metal. Goldman doesn’t agree.

The report said that “gold’s luster is likely to be tarnished in 2018, as the weak dollar and stagnant interest rate backdrop that supported gold’s performance last year is unlikely to persist.” The firm said overall that it was “tactically neutral” on gold.

At various points Goldman has been reported to be planning cryptocurrency trading services, though none are listed on the firm’s website.

Steve Cocheo

Steve Cocheo’s 39+ years in financial journalism have taken him to all 50 states and nearly every corner of financial services in companies from fintech startups to community banks to regional and national giants. He is executive editor of Banking Exchange and digital content manager of www.bankingexchange.com. Previously he spent 36 years on the staff of ABA Banking Journal and 22 years concurrently as editor of ABA Bank Directors Briefing. He is the only journalist to have sat in on three federal banking exams, was a finalist for the Jesse H. Neal national business journalism awards, and a winner of multiple awards from the American Society of Business Publication Editors. In 2017 he received three awards from ASBPE: National Gold, National Bronze, and Regional Silver. Connect with Steve Cocheo and Banking Exchange on LinkedIn. Follow Banking Exchange on Twitter

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