Cryptocurrency faces threat, may reduce to zero in value: Goldman Sachs

Goldman Sachs has once again cautioned investors against the fall in value of cryptocurrencies.  

In a report, Goldman’s Steve Strongin said most digital currencies are facing a threat from a small set of future competitors, and investors should prepare for coins to lose all their value.

His assessment was based on recent swings in cryptocurrencies that erased nearly $500 billion of market value over the past month.  

Strongin believed 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. Because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero,” he said.

Besides, cryptocurrency faces other challenges in the form of slow transaction times, security issues and high maintenance costs, which have withheld it from staying in power for long.

He said the introduction of regulated Bitcoin futures hasn’t addressed those concerns and he dismissed the idea of first-mover advantage -- noting that few of the Internet bubble’s high fliers survived after the late 1990s.

Strongin, however, supported the blockchain technology and said it could help improve financial ledgers.

A few months ago, Goldman Sachs criticised digital currency after it plunged 20 per cent in less than 24 hours and called it a vehicle to commit fraud.

Lloyd Blankfein, chief executive of the US investment bank, had then said: “Something that moves 20 per cent [overnight] does not feel like a currency. It is a vehicle to perpetrate fraud.”

Last year, Jamie Dimon, chairman, president and chief executive officer of JP Morgan, said at a conference in New York that digital currency is only fit for use by drug dealers, murderers and people living in places such as Venezuela, Ecuador and North Korea.

Last month, in a surprise move, Facebook announced a ban on ads related to virtual currencies, saying misleading or deceptive ads have no place on the social networking site.

Digital currency is facing flak in India also, where the government and the country’s biggest financial institution RBI have issued various warnings against cryptocurrency trade.

Late last year,  the Indian government asked consumers to be alert before investing in virtual currency like Bitcoin and compared it with notorious Ponzi schemes.

The development was first reported by Bloomberg.