Goldman’s Blankfein sums up middle aged feelings about cryptocurrency

June 20, 2018
Chris Wheal

Goldman Sachs’ Lloyd Blankfein drew parallels between when cell phones first came out and cryptocurrencies in a recent interview and perfectly summed up the way many middle-age people view the latter – with mystification.

We almost forget with the ubiquity of mobile phones today that when first launched they were viewed askance mostly because they were  unwieldy, as Blankfein joked during a Q&A at the New York Economic Club with Bloomberg editor-in-chief, Mick Middlewaite.

Back then he asked, “Who the hell is going to lug this thing around? There are ten phone booths on every corner. This is a fad.” Blankfein deadpanned, “Turned out to have worked.”

Old School Cell Phone. Source: Joshua Heller, Flickr.com

Blankfein drew the similarity between the technology then and cryptocurrencies today perhaps echoing the average lay person’s understanding and sentiment about digital coins.

He added, “So, now they have cryptocurrency, I can’t say why it should work but if it did work, I would be able to explain it in hindsight…I could give you a historical path why could happen and have happened.”

Blankfein said: “It’s not for me, I don’t do it. I don’t own bitcoin. Goldman Sachs as far as I know unless nobody told me, has no bitcoin.” But he did not fall in to the camp that said because something is “uncomfortable” or “unfamiliar”¬† it couldn’t happen.

He discussed the evolution of money beginning with gold through to the promise on a piece of paper that one can redeem. The gradual morphing of the fiat currency system where a government says this is worth what it is worth. The question argues Blankfein, becomes “Why couldn’t you have a consensus currency?”

Goldman Sachs’ Lloyd Blankfein Source: Goldman Sachs

Drivers: sentiment and speculation

The cryptocurrency market is a volatile and unpredictable one which Blankfein was also careful to point out warning it could be painful if someone put their entire net worth into crypto currencies.

Currently, “crypto winter” has set in as prices continue to fall in the first half of the year. However, as the latest Crypto Research Report released on Wednesday highlights, “Cryptocurrency markets are still largely driven by retail investors’ sentiment and rife speculation.”

Further, the report says “that trades on the crypto market are made on a purely emotional basis instead of being based on fundamental analysis” as a study by the Warwick Business School showed. This behaviour may be driven by a lack of data and knowledge.

The report tallied the total market cap of cryptocurrencies at around $400bn, around a quarter of that of gold as store of wealth (gold bars, coins and physical gold ETFs all together amount to USD 1.5tn). And monthly trading volumes of the three largest cryptocurrencies by market capitalisation (Bitcoin, Ethereum and Ripple) have increased sharply in recent months, from around $5bn in early 2017 to $550bn in December.

Goldman Effect

Goldman analyst, Steve Strongin, suggested that like the Dot com bubble of the naughties, arising from the ashes of that time are some of today’s biggest companies and that the speculative bubble encasing cryptocurrencies may very well leave behind strong survivors.

Crypto Research writes of what it calls the “Goldman Effect” in that the investment bank itself is “doing a lot for the legitimisation and growth of the crypto sector.”

Goldman, the Report claims, is sniffing out the new opportunity with Goldman analysts taking a closer look at Bitcoin in the summer of 2017. And in the beginning of May 2018, it was made public in the New York Times that Goldman Sachs will be entering the trading floor of Bitcoin.

 

 

 

 

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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