Just when cryptocurrency investors thought that prices were stabilizing and the worst was over, Goldman Sachs have suggested that for most investors things are going to get a lot worse. According to an investor report by Steve Strongin, their head of investment research, in the long run many cryptocurrencies will be worthless.

Strongin is concerned that participants in the markets do not seem to be behaving rationally as “new currencies don’t seem to reduce the value of old currencies” as we might expect. Instead, investors “seem to be trading cryptocurrencies as though they’re all going to survive, or at least maintain their value”.

It is difficult to imagine a future where Bitcoin and the altcoins are all in use, yet when it comes to prices, they all tend to move together. This correlation troubles Strongin, and to him seems a sign of a speculative bubble, not a rational market.  

Goldman Sachs predict that though there will likely be some long term winners, most coins will go to zero. In his view the cryptocurrency space is a winner-takes-all, or “few-winners-take-most” area. A handful currencies will be highly successful at the expense of the many. He notes that even if this is a speculative bubble it “does not mean current prices can’t increase for a handful of survivors”, though the majority of losers “will never see their recent peaks again.”

The problem comes in identifying which virtual currencies will be in that handful of winners. Indeed, there’s little reason to suppose that those cryptocurrencies have even been invented yet. Comparing the development of cryptocurrencies with the internet, Strongin points out that most of the early internet giants of the 1990s were displaced in the 2000s:

Are any of today’s cryptocurrencies going to be an Amazon or a Google, or will they end up like many of the now-defunct search engines?

The report notes that cryptocurrencies are still failing to deliver on their promise, with transaction times too long and security problems yet to be resolved. For the surviving coins it is likely that their form will likely be very different from how they are now. He notes that after the dotcom crash “very few companies that existed then went on to become even more valuable” and those that did, like Amazon, took on a very different form.

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