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Bitcoin risks: Most cryptocurrencies will end up with zero value, says Goldman Sachs' top executive

Last month, Goldman Sachs' Investment Strategy Group pointed out that Bitcoin's meteoric rise had dwarfed the rise seen in the dotcom bubble in its annual economic and investment Outlook for 2018.

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Bitcoin risks: Most cryptocurrencies will end up with zero value, says Goldman Sachs' top executive

Last month, Goldman Sachs' Investment Strategy Group pointed out that Bitcoin's meteoric rise had dwarfed the rise seen in the dotcom bubble in its annual economic and investment Outlook for 2018. "While we do not know if bitcoin or any other cryptocurrency will double or triple from prevailing rates, we do not believe that these cryptocurrencies will retain their value in the long run in their current incarnations," added the report.

Steve Strongin, head of Goldman Sachs global investment research, has recently gone a step further and said that he believes most cryptocurrencies "will most likely trade to zero" within a decade because their current forms are "too primitive" to be a long-term solution. "People seem to be trading cryptocurrencies as though they're all going to survive, or at least maintain their value. The high correlation between the different cryptocurrencies worries me. Contrary to what one would expect in a rational market, new currencies don't seem to reduce the value of old currencies; they all seem to move as a single asset class," he explained in a note published earlier this week. According to him, most-if not all-virtual currencies will never see their recent peaks again, blaming their "lack of intrinsic value".

The note comes in a week that saw the price of Bitcoin hit a three month low and the total market cap of cryptocurrencies has dropped from $397 billion to $381.4 billion today. However, according to Fortune, the note also mentions that this near-extinction might pave the way for newer, stronger cryptocurrencies.

"In hindsight, this period will probably end up looking like the internet bubble of the late 1990s. Very few companies that existed then went on to become even more valuable. Amazon did-but in a completely different form. Google-a big winner today-had only just been formed at the time," said Strongin, adding, "So, are any of today's cryptocurrencies going to be an Amazon or a Google, or will they end up like many of the now-defunct search engines? Just because we are in a speculative bubble does not mean current prices can't increase for a handful of survivors."

Strongin is not alone in predicting looming doom for cryptocurrencies. On Tuesday this week, American economist Nouriel Roubini called it 'the biggest bubble in human history'. Previously, Warren Buffet, the Oracle of Omaha, called Bitcoin a mirage saying "you can't value Bitcoin because it's not a value-producing asset".

The good news is if the 'bubble' bursts, it is unlikely to drag the world down with it. As the Investment Strategy Group's report put it, "We do not believe a collapse in Bitcoin will have major contagion effects on the global economy or financial markets". After all, at the peak of the dotcom bubble in March 2000, the combined market cap of Nasdaq and S&P 500 information technology stocks was 31% of world GDP (and 101% of US GDP). The aggregate market cap of cryptocurrencies is less than 1% of world GDP.

 

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