Goldman Sachs’ Chief Investment Office (CIO) Sharmin Mossavar-Rahmani said that cryptocurrency is in a bubble while answering questions in a Business Insider interview. He mentioned that crypto assets are in a huge bubble and when it finally bursts, it will impact the global GDP by 1 percent.
Mossavar-Rahmani handles investment for clients with over $10 million in assets at Goldman Sachs. She said that her clients are interested in the potential of cryptocurrencies. However, she also mentioned that ‘in their current format’, cryptos look more like a bubble than a real investment. Sentiments on blockchain technology were largely positive, as she considered it a boon for fintech companies.
During the interview, she said, “Our view is that while we like the concept of the blockchain, and think it will evolve into a useful tool for companies, for the financial industry, we think cryptocurrencies in their current format, meaning that in the current incarnation, are in a bubble.”
A recent report by Goldman Sachs’ Investment Strategy Group suggests that the rise of cryptocurrencies can be compared to several equity bubbles in the past, including the tulip mania, TOPIX in 1990 and then NASDAQ in 2000. In the report, the group has suggested that the TOPIX and NASDAQ bubbles look like ‘flat lines’ when compared to the currency cryptocurrency space. Even the Tulip Mania of the 1600s fades in comparison to these assets.
Two of the biggest cryptocurrencies on the market – Bitcoin, and Ethereum, were chosen for this comparison. Mossavar-Rahmani said, “The bitcoin prices are astronomical. Then we compare that to Ether, and Ether is even more astronomical. So clearly, these valuations don’t make sense to us. In addition, we think that these currencies have major shortcomings.”
However, the banks are not completely negative on these currencies, nor do they consider them a one-time success. She goes on to add, “Is there room for a digital currency, maybe sponsored by one of the major central banks like the Federal Reserve? Yes. Could it be incredibly useful? Could it reduce transaction costs? Yes. But not these ones.”
It is interesting to note that though Bitcoin and Ethereum are being coined as ‘astronomical’ bubbles, the Goldman Sachs CIO believes that it is too small to make a big impact on the US economy. She suggests that the crypto markets are too small and even if they burst, they will hardly impact 1% of the total GDP of the world.
Goldman Sachs previously denied to open a crypto trading desk when CEO Lloyd Blankfein refuted a Bloomberg report suggesting otherwise. The bank, however, does own a stake in Circle, a crypto trading desk, since 2015 which means that it has direct exposure to the crypto assets.
In April 2015, when Goldman bought stake in Circle, Bitcoin was trading at $225.59. The prices of the currency went all the way to $19,000 last December, only to face a major correction. There are many industry experts like Fundstrat’s Tom Lee who believe that Bitcoin could reach $20,000 by June and $25,000 by the end of the year, even after this correction.