Goldman Sachs has warned its wealthiest clients against succumbing to cryptocurrency “mania,” which the investment banking giant claims has “moved beyond bubble levels.”
The firm’s Private Wealth Management division issued this warning in “(Un)Steady as She Goes,” a 108-page note distributed this month to clients with more than $10 million in investable assets.
“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,” wrote a group of Goldman executives and analysts led by Sharmin Mossavar-Rahmani and Brett Nelson.
The bank clarified that it is quite bullish on the prospects of digital currency and blockchain technology in general but said that bitcoin does not provide users with any of this technology’s “key advantages.”
“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. Quite the contrary,” Goldman wrote.
In what has become a well-worn critique, the note compared the present state of the cryptocurrency markets to the so-called “tulip bubble” in 17th-century Holland, adding that bitcoin has already “dwarfed” tulipmania and other historic asset bubbles.
“There is no doubt that the rise in bitcoin’s price has pushed it into bubble territory,” the note said, “cryptocurrencies have moved beyond bubble levels in financial markets.”
‘[O]ur descendants doubtless will laugh at the human insanity of our Age, that in our times, the tulip flowers have been so revered,’” Goldman concluded, quoting a Dutch historian writing a decade after tulip prices collapsed.
However, diverging from a recent Wells Fargo analysis, Goldman said that it did not believe a cryptocurrency market crash would spill over into traditional equities — at least at the market’s present level.
“We should also add that we do not believe a collapse in bitcoin will have major contagion effects on the global economy or financial markets,” Goldman wrote. “At the peak of the dot-com bubble in March 2000, the combined market capitalization of Nasdaq and S&P 500 information technology stocks was 101% of US GDP and 31% of world GDP. The aggregate market capitalization of cryptocurrencies is 3.2% of US GDP and 0.8% of world GDP.”
Wells Fargo strategist Christopher Harvey, on the other hand, said last month that he believed the cryptocurrency market correction had already begun to affect stocks.
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Last modified: May 20, 2020 9:09 PM UTC