If you’re an investor anguishing at the performance of bitcoin lately, there may be more bad news on the way. Today, Goldman Sachs issued a warning against the cryptocurrency, affirming that there is “no doubt” that bitcoin’s meteoric rise over the past year has “pushed it into bubble territory.”
Goldman Sachs also compared last year’s bitcoin frenzy to the renowned dot-com era of the late 1990s and the Dutch “tulipmania” of the 17th century. The investment banking firm believes that this “bitcoin bubble” could get much bigger than its historical comparables.
Analysts at Goldman Sachs view the extreme price volatility of cryptocurrencies like bitcoin as a big indication that a big crash could be on the cards. They also pointed out that as the biggest cryptocurrency by market cap, bitcoin does not actually fulfil the role it sets out to do.
In a research report issued to investors, Goldman Sachs analysts stated:
“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.”
According to the report, the difference in bitcoin prices between exchanges at the same time could reach as high as $4,000 just because a single bitcoin transaction takes a long time to process. This means a buyer could be paying 31% more for one BTC on one exchange than another.
In addition to bitcoin, Goldman Sachs also gave a similar verdict on other cryptocurrencies such as ether and ripple.
“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,” Goldman Sachs analysts wrote.
However, the good news is that Goldman Sachs is still positive about the blockchain technology in general and is considering building a trading platform for bitcoin. As well, analysts do not expect a major crash in bitcoin to cause “major contagion effects on the global economy or financial markets.“
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