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

Good. I could finally buy a new graphics card

[MrNJ]

Once the miners stop buying, the prices should normalize

Re:Good. I could finally buy a new graphics card

[InvalidsYnc]

I also would like a reasonably priced GPU, but I am seriously more concerned about the power requirements of all of this mining. Globally the power consumption must be huge, and as I understand how BC is designed, it will only get larger, that cannot be good on the whole global warming front as it increases the demand for non-renewable energy sources along side the renewables just to keep up.

I really think that cryptocurrencies like the current ilk were created by power companies just trying to sell more power. ;-P

Re:Good. I could finally buy a new graphics card

[ewibble]

Of course they can hit 0, if no one is willing to buy them. You can say your trash is worth 1 million dollars and not give it away for any less but if no one will pay you anything for it, it is worth 0. If all the miners stop mining you won't even be able to sell them.

I see no reason why it wouldn't hit 0, since it is actually useless as a currency, it is just taking up space on your computer.

Re:Good. I could finally buy a new graphics card

[Miamicanes]

Bitcoin's fundamental problem is that if it doesn't crash & lose its value anyway, it'll eventually become too valuable to use as actual currency.

Bitcoin's proponents point to its decentralized nature and lack of government control, but overlook the fact that its blockchain can't scale. It's ALREADY staggeringly huge (something like 200 gigabytes the last time I checked). Sure, you can delegate responsibility for checking it to some other device (or third party) instead of hauling the whole thing around on your phone, but THEN you become dependent upon your ability to trust that third party AND its ability to keep bad guys from hacking them (to show that a spent bitcoin is still available, long after it has ceased to be). The second part is what fucks you if you try using YOUR OWN off-device infrastructure (like a server at home) or run by some public-spirited organization (that nevertheless assumes zero liability for anything that Goes Wrong)... not even large banks that actively TRY to prevent hacking attacks are able to succeed with only technical defenses. The entire credit card industry works because they have enough capital to absorb losses & use the legal systems of their respective countries to keep crime down to a tolerable slow burn. Your personal long-term ability to keep your own server hackproof (while nevertheless keeping it accessible to you when you're away from home) is approximately zero... eventually, someone will find a way to compromise your phone, your server, the PKI it depends upon, and/or anything in between... unless (or quite probably, EVEN IF) you dedicate your life to maintaining its security and integrity.

And in the meantime, you're going to spend more and more time waiting for transactions to clear unless you pay someone to expedite the transaction and assume at least some risk.

So, we get to problem #2... Bitcoin transactions can't be added to the blockchain until someone else manages to mine a new Bitcoin. As time goes on, this will become exponentially more expensive and difficult, so the fees they'll charge will go up & overwhelmingly impact otherwise-small transactions. If the cost of completing a transaction approaches something like 0.1 Bitcoin, it'll cease to be cost-effective to trade anything less than several Bitcoins at once. At best, Bitcoin becomes a virtual backing currency that only large traders can afford to exchange. To an extent, this has already happened with companies that use commercial wallets to handle microtransactions. And the companies running those microtransaction wallets are just as vulnerable as everyone else, except they're even BIGGER targets and even MORE hopelessly outgunned (think: homeowner vs armed burglar, compared to small business vs organized crime shakedown).

Long-term, Bitcoin will probably survive and pivot to new primary users when others fall, but it's hopelessly naive to think Bitcoin will EVER be usable for casual purchases. Commercial services that absorb risk to expedite transactions will end up costing as much as Visa or Mastercard, and be every bit as regulated by governments. As an almost-free guerrilla alternative to Paypal, Bitcoin is a long-term failure by design. As a virtual reserve currency, it might survive... but whether Bitcoin will ever become more cost-effective for businesses and banks to use for real trade than US Dollars, Euros, or any other currency is far from certain.

Re:How is this any surprise?

[El Cubano]

The technology is interesting and useful, but cryptocurrency value is just due to the Beanie Baby effect.

I think it more likely that Goldman and/or their buddies went short on cryptocurrencies.

It is strange that the markets can be moved by the analyses/opinions of those who stand to benefit from making the markets move in a particular direction, no?

Re:How is this any surprise?

[mark_reh]

That analogy would be perfect, if you could move a couple million dollars worth of Beanie Babies across borders without risk of detection or confiscation.

A couple million dollar's worth of beanie babies has never existed. 2 dollar's worth of beanie babies has never existed. You're making the common mistake, made by bitcoin and beanie baby "investors" alike, that price = worth. The truth is, price and worth are two different things, and large differences between the two are not sustainable. Either the worth has to rise to meet the price, or the price has to fall to match the worth. I don't see bitcoin's worth rising.

The only people who want to move a couple million dollars across borders without detection are, by definition, criminals.

Re:Don't conflate value with utility

[Jeremi]

Goldman is wrong. Blockchain-based cryptocurrencies are here to stay.

I don't know whose argument you are trying to rebut, but it isn't the one presented in the article.

In the article, the argument was that most block-chain based currencies will eventually become worthless, because everyone will eventually standardize on a small number of successful currencies and the market will lose interest in the also-rans. (Think VHS vs BetaMax)

That's completely different from the idea that all blockchain currencies will go away, which is the straw man argument that you seem to be trying to refute.

Re:Lack of intrinsic value??

[Sneftel]

Yes, like paper money. His point was, certain securities have soft landings built in. The price of gold might tank if people lose confidence in it as an investment, but it won't go to zero, because other people want to buy gold to manufacture things with. Paper money and cryptocurrencies, in contrast, are subject to dropping to basically-zero (hyperinflation). "Intrinsic value" may have been an inexact way to describe that, but it's a reasonable shorthand.