New York-based global investment banking giant Goldman Sachs has completed an initial assessment of digital currencies that concluded they are currently too volatile for serious investors.
The news comes from noted online news source TechCrunch, which says it obtained a copy of an internal discussion document from a contact at Goldman Sachs.
The excerpts posted by the media outlet provide evidence that Goldman Sachs is currently looking into the currency, though it is uncertain about its benefits. The bank even went so far as to suggest that it remains confused by the uproar surrounding virtual currencies.
Said one excerpt:
“2013 was the year when Bitcoin became a mainstay in mass media, to the extent that it has become hard to separate the effect of hype surrounding the currency from its fundamentals.”
While the bank’s major findings noted a laundry list of the virtual currency’s shortcomings, it acknowledged some of the potential benefits of bitcoin. In particular, it noted bitcoin’s ability to remove processing costs from micropayments and to provide “anonymity, security and a natively digital experience to online transactions for consumers”.
The news comes just weeks after JPMorgan weighed in on bitcoin with a more formal report that labeled digital currencies as “vastly inferior to fiat currencies“.
Ultimately, the report concluded that bitcoin is not yet suitable for merchant use due to its price volatility. This was a criticism also held by JPMorgan, which suggested that this risk outweighed the benefits of any potential savings.
On the matter of consumer use, Goldman Sachs determined that “there are more speculators in bitcoin versus participants in e-commerce”. The comments indicate the bank believes bitcoin needs to attain a greater level of liquidity before it becomes useful as a currency, though reports suggest that this shift may already be occurring.
Indeed, the bank found that bitcoin lacks a number of other attributes that could make it attractive to investors:
“There is no liquid derivative market for Bitcoin; nor a large market of B2B suppliers which companies can use for spending Bitcoin.”
The report summaries suggest that Goldman Sachs believe bitcoin to be far from a point of mass adoption, but that significant opportunities could one day exist in the ecosystem for investors.
The document said:
“As a full suite of financial services build up around Bitcoin, there will be numerous (mostly commission- based) revenue opportunities investors can focus on, including providing exchanges, wallets, payment processing, lending, derivatives and other services.”