Goldman Sachs Report Warns Investors of Bitcoin 'Bubble'

Goldman Sachs analysts have claimed bitcoin is in a bubble bigger than the dot-com era and the famous Dutch tulip mania.

AccessTimeIconJan 23, 2018 at 3:31 p.m. UTC
Updated Sep 14, 2021 at 1:55 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

Goldman Sachs has claimed that bitcoin is a bubble bigger than the dot-com era and the famous Dutch tulip mania.

In a research letter to investors, the banking firm's analysts warned about the increase in cryptocurrency values, highlighting the price moves in bitcoin and ether, as well as the stock price increases for companies which pivot to blockchain.

One example, The Crypto Company, saw its price jump more than 17,000 percent before the U.S. Securities and Exchange Commission halted trading, according to the report.

The mania is surprising, the authors say, because the world's largest cryptocurrency by market cap, bitcoin, does not fulfill the role it set out for itself.

The report states:

"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."

A single bitcoin transaction can take up to 10 days to process, and the value of a single bitcoin varies depending on which exchange a user conducts their transaction through, according to the report. There was a greater than $4,000 difference in the price of a bitcoin between different exchanges at the same time late last year, it adds. This meant that one user could be paying 31 percent more for a bitcoin on one exchange than another.

High transaction costs are another issue, the report argues.

However, despite the inflation of bitcoin and other cryptocurrencies, there is no risk that they will impact the U.S. or global economies, even in the event of a crash, according to the report.

While cryptocurrencies make up only a tiny fraction of U.S. and world GDPs (3.2 percent and 0.8 percent, respectively), the dot-com bubble was much more significant in the U.S. and globally (101 percent and 31 percent, respectively), according to the letter.

The authors add that they do not believe a collapse in bitcoin prices would have "major contagion effects on the global economy or financial markets," concluding that "we view the

unsteady cryptocurrencies as no match for the 'Steady as She Goes' dollar."

Goldman Sachs Tower image via Shutterstock

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.