Sharmin Mossavar-Rahmani is CIO of the Private Wealth Management Group at Goldman Sachs and responsible for guiding millions of dollars of fiat investments. According to the transcript of an interview, cryptocurrencies have been a hot topic for the firm with investors highly keen to learn more about them and the blockchain technology they utilize. Whilst the company recognizes the potential of blockchain technology, the firm is not surprisingly bearish regarding the fully decentralized currencies that currently exist.
“Our view is that while we like the concept of blockchain, and think it will evolve into a useful tool for companies, for the financial industry, we think cryptocurrencies in their current format, meaning that in the current incarnation, are in a bubble.”
She went on to compare the current situation to a range of well-known bubbles, such as TOPIX in 1990, Nasdaq in 2000, and even to the tulip mania of the 1600s – describing cryptocurrencies as “astronomically” more of a bubble.
Later in the report however Mossavar-Rahmani seemingly contradicts this statement, acknowledging that cryptocurrencies in fact make up less than 1% of global GDP (today’s total market caps $0.5t). To put it into perspective, Gold currently has an estimated marketcap of $8t, and the dotcom bubble of 2000 is estimated to have been $7t. To go one step further, we can look at the 2008 global financial crisis, caused by excessive risk taking by banking group Lehman Brothers and a hugely inflated housing market. Subprime mortgages of questionable value were sold at a huge premium – vastly inflating the market. When it crashed, $6t of investors money vanished with it.
It’s also interesting to note that gold and housing investments are entirely speculative, whilst cryptocurrencies are beginning to offer real world functionality that will likely disrupt industries across the board – including the financial sector. This fact may be at the heart of the fear, uncertainty and doubt emanating from large financial institutions. Decentralized virtual currencies are not controllable, and big banks can’t receive huge payouts from a federal reserve on a regular basis. Comments from Mossavar-Rahmani today certainly imply this:
“Is there room for a digital currency, maybe sponsored by one of the major central banks like the Federal Reserve? Yes. Could it be incredibly useful? Could it reduce transaction costs? Yes. But not these ones.”
Here “these ones” refer to currencies uncontrollable by banking and governmental authorities. It’s a clear sign that the financial industry is starting to grow worried regarding the development of cryptocurrencies that take away their economic power. It’s an idea that builds upon revelations from earlier this week, were a memo from Goldman Sachs to the SEC was leaked stating that the institution “may be, or may become, exposed to risks related to distributed ledger technology”. Goldman Sachs aren’t the only institution growing worried, earlier this month it was revealed that Bank of America regards cryptocurrencies as a fundamental threat to their business model.
Centralized financial institutions are right to fear cryptocurrencies. Currently they wield enormous power over global citizens, able to maximize profits in increasingly more dangerous financial games. When the bubble pops, sending the global economy crashing into years of decline, it’s taxpayers who must step in and bail out the banks to the tune of trillions of dollars. With virtual currencies, centralized authorities become increasingly superfluous, as citizens become able to borrow, lend and invest on a decentralized trustless and low-fee global network.
Whilst the rise of cryptocurrencies has certainly been meteoric and the current marketcap is still largely speculative, the notion that this is the largest economic bubble in history is a shame-faced attempt at spreading fear, uncertainty and doubt. It’s a clear indication of a highly worried centralized system facing a future in which it has no place.
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