Get Ready For Most Cryptocurrencies to Hit Zero, Goldman Says (bloomberg.com)

An anonymous reader shares a report: The tumble in cryptocurrencies that erased nearly $500 billion of market value over the past month could get a lot worse, according to Goldman Sachs Group's global head of investment research. Most digital currencies are unlikely to survive in their current form, and investors should prepare for coins to lose all their value as they're replaced by a small set of future competitors, Goldman's Steve Strongin said in a report dated Feb. 5. While he didn't posit a timeframe for losses in existing coins, he said recent price swings indicated a bubble and that the tendency for different tokens to move in lockstep wasn't rational for a "few-winners-take-most" market. "The high correlation between the different cryptocurrencies worries me," Strongin said. "Because of the lack of intrinsic value, the currencies that don't survive will most likely trade to zero."

Comments

Don't conflate value with utility

[StandardCell]

Goldman is self-interested in eschewing a method of financial transactions where it does not have the ability to control or extract value out of. It got late to the party and is SOL as far as most cryptocurrencies go.

That said, most cryptocurrencies are substantially overvalued because the underlying value of any currency - crypto or otherwise - has to be backed up by some type of economy. The USD used to be on the gold standard, and only started inflating substantially after it was taken off even though a not-insubstantial portion of that value is in services and intellectual property rather than goods. The inflation of the value of the currency is a natural side-effect of a number of factors, but the ones that are most relevant in this discussion are disparate classes of valuable assets (physical and non-physical), the participants interacting with the currency, and speculation. Also remember that the value of cryptocurrencies is also being exchanges for other currencies, so there are also transaction costs and the actual value of those currencies relative to the cryptocurrency.

In any event, if we use those measures, the inherent value of any currency is the value of the actual goods and services tempered by these factors. That there has been speculation driving up the price is obvious. More importantly, we cannot state the value of all cryptocurrencies is zero strictly because of speculation, because cryptocurrency value is based on the fact that there are people are still willing to exchange goods, services and other valuables including paper currencies in exchange for cryptocurrency!

Goldman is wrong. Blockchain-based cryptocurrencies are here to stay. What isn't wrong is the analysis that states there is overinflated value in the cryptocurrency. We can, of course, also say that of the inflated value of today's normal paper currencies backed by central banks, including speculation with various instruments and the perception of their underlying value. It's the same reason I can purchase currency futures and forwards for common currencies versus requiring special instruments like letters of credit for currencies of little value or with little trade with the currency of question (e.g. try to find a forward for Turkish Lira versus Burundian Francs). The only real difference is how that transaction happens.

And since Goldman is cut out, you better believe that they and JP Morgan and all of the investment banks are doing anything they can to keep themselves relevant in this brave new world of cryptocurrency. Spread FUD, use existing political connections to regulate or shut down cryptocurrency use, whatever. It's just that this time it really may not work.

Became an investment strategy

[jfdavis668]

The point behind the currency was to be a way to transfer value without the regulations attached to fiat money. Somehow it turned into an investment strategy instead. People were buying them to take advantage of the price fluctuations. It kind of defeated the purpose behind them.

Re:Mod parent up

[Joce640k]

Somebody rebut this or I'll need to dump my bitcoins fast!

Sorry, it's true.

There was a delicate point in Bitcoin history where anybody with a lot of computers could have taken every Bitcoin in existence, simply by having more computers (you need to own 51% of the computers in the block chain).

If large mines start dropping out and people can organize themselves into gangs (or somebody has a vary large Botnet) then we might go back there.