In a report sent to the bank’s clients, Goldman Sachs analyst Zach Pandl wrote that the rapid increase in demand for bitcoin has been triggered by the growing dissatisfaction with regulated monetary systems and the current banking infrastructures.
In the long-term, as cryptocurrencies mature and evolve into a major asset class, Pandl noted that digital currencies like bitcoin will pose lower returns but demonstrate a high level of stability, like gold and other safe haven assets. He wrote:
“We should stress that, as money, cryptocurrencies should have low expected returns in the long run, despite their high returns recently. Digital currencies should be thought of as low/zero return or hedge-like assets, akin to gold or certain other metals.”
However, Pandl also provided a negative viewpoint on the price trend of bitcoin and the exponential growth rate of the cryptocurrency market, sharing the sentiment of experts within the cryptocurrency market such as Ethereum creator Vitalik Buterin and co-founder Charles Hoskinson.
In December, Buterin stated:
“So total cryptocoin market cap just hit $0.5 trillion today. But have we earned it? How many unbanked people have we banked? How much censorship-resistant commerce for the common people have we enabled? How many dapps have we created that have substantial usage? Low added value per user for using a blockchain is fine, but then you have to make up for it in volume.
The answer to all of these questions is definitely not zero, and in some cases it’s quite significant. But not enough to say it’s $0.5 trillion levels of significant. Not enough.”
While the market valuation of several major cryptocurrencies like bitcoin and Ethereum could be justified given their massive user bases and increasing user activity, the market valuation of other cryptocurrencies in the market can be questioned. In that sense, Pandl’s description of the cryptocurrency market as a “classic speculative bubble” could also be justified.
Bitcoin’s Potential
But, as Goldman Sachs CEO Lloyd Blankfein explained in an interview with CNBC, if bitcoin is the natural progression from fiat money or physical forms of money to digital currencies, the market valuation of bitcoin can be easily justified.
Blankfein emphasized that abolishment of the gold standard and the abrupt introduction of the fiat currency system was not accepted and adopted by individuals and businesses at first. Over time, the global economy adapted to the fiat currency system and began using it as the main form of money.
Bitcoin could lead to the natural progression from fiat currencies to digital currencies, similar to the change from gold to the US dollar.“You move a little bit further and you get bitcoin that is not a fiat currency so I don’t trust, it and I don’t like it. On the other hand, if it works, I say maybe it was a natural progression from hard money to digital money,” said Blankfein.