Goldman Sachs is counseling institutional investors to give cryptocurrency a closer look. Goldman analyst Robert D. Boroujerdi has recently told portfolio managers that cryptocurrencies must be paid attention to.
With the total value nearly $120 billion, it’s getting harder for institutional investors to ignore cryptocurrencies.
Industry people now are beginning to view ICOs as valuable offerings. Boroujerdi points out that the money at work with cryptocurrencies cannot be ignored.
Whether or not you believe in the merit of investing in cryptocurrencies (you know who you are) real dollars are at work here and warrant watching especially in light of the growing world of initial coin offerings (ICOs) and fundraising that now exceeds Internet Angel and Seed investing.
It is not necessarily a good thing for Goldman to get involved in crytpocurrencies. The largest and most powerful firm on Wall Street has the ability to reconfigure cryptocurrencies and boost their profiles considerably.
Additonally, cryptocurrencies are surely in a bubble and Goldman’s partipation can only aggravate the bubble. The bottom line with cryptocurrencies is that they ought to be market driven as much as possible.
When the crash comes, the currencies that are the most market driven will suffer the least damage. But the ones that are propped up by artificial conditions will have the farthest to fall – and may not come back.
Goldman has no great affinity for untrammeled markets. It will certainly take short cuts to build currencies that are not overwhelmingly market based. Some of these currencies will be quite large for a period of time before collapsing.
Take the recent example with Goldman in Venezuelan bonds. Goldman was able to purchase $2.8 billion in bonds for $865 million from the cash strapped dictator. This was done through the state owned oil company, but going directly to the central bank. This is nearing a 50% interest rate where no investment in Venezuela has a return even remotely close. Goldman now stands to make a nice profit from the purchase which can only be repaid with more pain inflicted on the local community. These are the types of short sighted investments Goldman is known to execute.
Of course there is little capitol by percentage in cryptocurrencies compared to stocks and bonds, but over time the cryptocurrencies bubble could become quite large indeed. There are up to $1.5 quadrillion in derivatives, while securitized debt and stocks are in the area of $116.4 trillion. Government bonds are around $56.7 trillion while bank money (fractional reserve) is $50 trillion.
When the larger bubble collapses, we may end up with a debt jubilee and this is entirely possible given the way debt continues to climb. Global negative-yielding debt, for instance, just climbed back above $10 trillion. Rates have stayed too low for 20 years and when stocks and bonds collapse, cryptocurrencies could collapse too. Nothing goes up forever-
However, over a longer time period the remaining cryptos may grow a good deal larger. Imagine if even a very small percentage of fiat moves into the cryptocurrency market. Currently there is still very little in the crypto market by percentage.
Meanwhile governments want digital currencies so such currencies will go forward. And Goldman will likely play a hand in them as well.