Is Bitcoin a Currency…What Goldman Sachs Feels?
Founded in January 2009, Bitcoin is a digital currency. It’s basically a protocol and an open-source software that allows immediate peer to peer transactions across the globe. The best part is that there are no processing fees, and if at all there are any fees, they are so minimal that you’ll ignore them. Bitcoin became extremely popular as there was no risks of any fraud or chargebacks. It was also immune to confiscation or seizure.
However, Goldman Sachs feels that people who believe in Bitcoin need to take a step back and reassess it being a currency. Goldman Sachs, the financial services firm has conducted and also put together a comprehensive survey of bitcoin as well as Bitcoin. The findings reveal that Bitcoin as a currency will not work, although, the ledger-based technology that it follows definitely holds some promise.
For those, who are still not very familiar with the concept of Bitcoin, it’s basically, a peer-to-peer network that enables transfer of ownership as well as allows for proof without actually requiring the help of any trusted third parties. The unit of this particular network is bitcoin.
Opinions on Bitcoin by the Economic Analysts at Goldman Sachs
Dominic Wilson and Jose Ursua Write…T
The analysts at Goldman Sachs have considered bitcoin, which is a unit of exchange as a commodity rather than a currency as per the reports. However, not completely agreeing with this point of view are Dominic Wilson who is the chief markets economist and Jose Ursua who is a global economist at Goldman Sachs. They are of the opinion that Bitcoin and other such digital currencies are somewhere on the boundary of financial asset, commodity as well as currency. According to them, at the moment Bitcoin is a speculative financial asset that can be utilised as a medium to exchange.
They also feel that a cyber-currency to work smoothly and effectively needs a fixed exchange rate to succeed. The difficulties faced by Bitcoin in terms of a store of value pose significant obstacles to its adoption.
The authors also feel that it is more possible for Bitcoin to have a bigger impact on innovation of its payments technology by enforcing the existing players to either co-opt or adopt it. It wouldn’t make much sense if it took off as an alternative currency that is being widely used.
Jeff Currie’s Views
Jeff Currie who is the head of commodities research at Goldman Sachs argues that it doesn’t really hold any water against the gold-standard of commodities, which is gold. According to Currie, a commodity can be defined as an item that accommodates our physical needs and wants. One of those physical wants is the requirement for a store of a value. He feels that currencies on the other hand can be secured by either the government’s capability to tax and defend or a commodity.
If you were to go by Currie’s reasoning, any commodity becomes supplanted when an even better commodity comes along. So, basically, what Currie ponders over is if Bitcoin will be able to the economic instability that is currently seen with one of the most popular commodity, gold.
However, Currie writes on to clarify that gold has not fallen as a store value. He gave an example of how wood as a commodity did not quite serve the purpose in the long run. It failed as a source of energy for steam engines. In fact, coal worked out better and steam locomotives operated faster and farther on coal than wood. However, the same can not be said about Bitcoin as it doesn’t really improve upon the yellow metal.
Although, Goldman Sachs seems quite pessimistic about Bitcoin as a currency, they have realised that the technology platform shows quite a bit of promise. In fact, Global Advisers, a commodities trader have already been trading Bitcoin directly albeit on a proprietary basis.
Daniel Masters, Founding Co-principal at Global Advisers
The founding co-principal at Global Advisers, Daniel Masters feels that the vociferous trading of Bitcoin is very similar to the spike in silver prices from 2005 through 2011.
He says that there is a huge demand for Bitcoin, and to meet it, they will have to raise the prices just like they had to do in case of silver. In particular, he feels that a reasonable price for Bitcoin could be around $150 billion. This places it in the region of Greece’s M1 and Amazon’s money supply.
On the other hand, investors and entrepreneurs still see some promise in this currency or commodity and its technology. An entire new wave of startups have already started launching services around Bitcoin and bitcoin. They may be able to offer the stability that the industry requires at this time.
Jeremy Allaire, Founder of Circle
Circle is a Bitcoin startup that has been backed by General Catalyst and Accel.
Jeremy Allaire, a serial entrepreneur as well as the founder of Circle says that he has seen a number of amateur enthusiasts who are getting winnowed out and weaned out. Such is the effect that Bitcoin has managed to have on them. It’s also managed to achieve real network effects on a worldwide basis. He says that the number of new companies, entities and projects that are being formed on a global basis are legion. There are literally thousands of them.
According to Allaire, the primary and important part that is missing for adopting and using Bitcoin is regulation. He goes on to say that the main thing that is vital is common supervision. Certain common rules of how the currency exchanges, the wallet services, and their operations need to be consistent all across the globe. All the top organisations are extremely interested in the US-based trading exchange area.
To round it off, Goldman Sachs does maintain that it does not really have an institutional perspective on Bitcoin yet, however, multiple initiatives are going on in order to get a handle of the situation and of this phenomenon.