At a time in which JP Morgan CEO Jamie DImon admits he regrets calling bitcoin a “fraud,” and billionaire Warren Buffett admits he doesn’t know anything about cryptocurrencies, Goldman Sachs reveals bitcoin and cryptocurrencies could serve as alternative, viable forms of money in emerging markets.
In a nine-page research report on the subject titled “Bitcoin as Money,” analysts Zach Pandl and Charles Himmelberg recognize the cryptocurrency’s potential. They predict it will climb even higher this year. The report speculates leading financial institutions will look at bitcoin in a serious way, but adds it won’t replace established currencies like the U.S: dollar.
Bitcoin and other cryptocurrencies may “offer viable alternatives in countries and corners of the financial system” where traditional financial services are “inadequately supplied.” This, when blockchain technology goes mainstream, according to the analysts.
As Bloomberg and the report’s authors point out, many currencies in sub-Saharan Africa have lost value do to high inflation and supply mismanagement. This forced foreign money to be influential in these countries, leading to dissatisfaction with central bank systems. Goldman Sachs notes that “bitcoin” is one of the most popular search terms in countries like Nigeria and Ghana, according to Google Trends.
The report makes it clear the usage of the U.S. dollar in other nations means there is demand for a store of value and means of exchange. . However, it states cryptocurrencies wouldn’t necessarily be suitable for the job just yet. PArticularly, due to their volatility and the speculation around them.
Cryptocurrencies as “viable money”
If bitcoin and other cryptocurrencies prove capable of “facilitating transaction at a low cost and/or providing better risk-adjusted returns for portfolios,” they can attain the status of “viable money” per financial institution’s analysts.
The report reads:
“Volatility would likely need to come down dramatically (either naturally or through the widespread adoption of cryptocurrencies designed to better stabilize purchasing power via supply adjustments) before we see broader adoption.”
The analysts notably expect cryptocurrencies to stop yielding incredible returns to investors in the long run. Their assumption is that the returns “should equal to – or slightly below – growth in global real output.” They add that cryptocurrencies should be seen as hedge-like assets, with low or no returns expected from them.
This doesn’t mean that prices won’t increase at a faster rate as adoption increases, the analysts noted. They added an analogy for the “value of a biotech company that invents a drug, which eventually becomes a generic.” To them, there is an “inherent contradiction” between cryptocurrencies being a store of value, and the high return rates investors have been seeing.