It is no secret by now that Bitcoin along with other cryptocurrencies are highly volatile in terms of its price. Though the technology behind Bitcoin and other altcoins is quite revolutionary, it is important to note that there is still the possibility that it might fail. For instance, we’ve seen the price of Bitcoin and other digital currencies decrease in value after a series of regulatory changes from different parts of the globe.
A Goldman Sachs executive, Sharmin Mossavar-Rahmani, who works as Goldman’s CIO of the Private Wealth Management, mentioned that not only Bitcoin but Ethereum too is a bubble. However, despite leaving a negative comment on cryptocurrencies, Blockchain was described by the Goldman exec as “extremely useful”.
What Makes It a Bubble?
What exactly makes Bitcoin and Ethereum a bubble in the very first place? Mossavar-Rahmani simply gave the same statement as other prominent individuals from the traditional banking and investment niche.
“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 in the current incarnation, are in a bubble”.
She further explained of what makes Ethereum a bubble as well. She mentioned that “these valuations don’t make sense to us. In addition, we think that these currencies have major shortcomings. 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”.
Just how bad could this bubble be? Mossavar-Rahmani mentioned that TOPIX and Nasdaq compared to cryptocurrencies look “like a flat line”. She also mentioned that compared to the Tulip bubble in the 1600s, Bitcoin’s price is simply too high. But when it comes to Ethereum’s price, she described it as “even more astronomical”.
Impact on the Economy?
Just how large of an impact can it cause in case cryptocurrencies truly burst? According to Mossavar-Rahmani, she mentioned that cryptocurrencies take only a small portion of the entire global economy. She mentioned that it will only take less than 1% of the entire global GDP.
She mentioned though that there will be people who will be affected by this in case it is truly a bubble. “There are a lot of people who have set up various exchanges, infrastructure, hedge funds in that space, so obviously, they will get hurt. But it’s very, very small part of global GDP”.
Despite her comment on cryptocurrencies, Mossavar-Rahmani mentioned that Goldman has an expert who is in charge of discussing blockchain technology with their clients. And so far, she is busy given all the hype that blockchain technology has been receiving lately.
“One of our colleagues, Mary Rich, has actually spent a lot of time on it and—she’s so much in demand, because everybody wants to talk to her and learn more about cryptocurrencies, learn about Blockchain”
Could she actually be right with her prediction? In fact, it isn’t the first time that someone from the traditional finance world expressed this concern on cryptos.