Goldman Sachs outlook for bitcoin and Ethereum

Sharmin Mossavar-Rahmani is the CIO of the Private Wealth Management Group at Goldman Sachs where she guides the investment strategy for clients with over $10 million in assets. Mossavar-Rahmani joined Business Insider’s Sara Silverstein to discuss cryptocurrencies. Following is a transcript of the video.

Sara Silverstein: And are your clients worried and are they are they interested in cryptocurrencies? Are they interested in bitcoin? Are they worried that it’s gonna destroy the market? What are you hearing from clients? And what’s your point of view?

Sharmin Mossavar-Rahmani: Cryptocurrencies are the hot topic. One of our colleagues, Mary Rich, has actually spent a lot of time on it and — She’s so much in demand, because everybody wants to talk to her and learn more about cryptocurrencies, learn about blockchain. Our view is that while we like the concept of blockchain, and think it will evolve into a useful tool for companies, for the financial industry, we think cryptocurrencies in their current format, meaning that in the current incarnation, are in a bubble. We actually have a couple of very interesting exhibits in our report. And the report is available for any of your viewers who would like to see it on the Goldman Sachs website. And we show the returns of cryptocurrencies against other asset classes that have been in bubble territory. So for example, we compare it to the TOPIX in 1990. We compare it to the Nasdaq in 2000. And what you can see is that, basically, these other big bubbles that we’ve had look like a flat line, even compared to tulip bulb prices, tulip mania in the 1600s, which was a bubble. We always talk about tulip mania. The bitcoin prices are astronomical. Then we compare that to Ether, and Ether is even more astronomical. So clearly, these valuations don’t make sense to us. In addition, we think that these currencies have major shortcomings. Is there room for a digital currency, maybe sponsored by one of the major central banks like the Federal Reserve? Yes. Could it be incredibly useful? Could it reduce transaction costs? Yes. But not these ones.

Silverstein: And how connected is it to the rest of the market, could there be if all of it blows up? Will it impact other people’s portfolios?

Mossavar-Rahmani: That’s an excellent question. And clients ask us if the dot-com bubble bursts or when subprime mortgages led to the downdraft and eventually the global financial crisis, could we see something similar from the impact of cryptocurrencies coming down? But cryptocurrencies are a much smaller part of the global economy, whether you compare it to US GDP or global GDP, it’s less than 1% of global GDP. And so in terms of the impact, it’ll have some impact. There are a lot of people who have set up various exchanges, infrastructure, hedge funds in that space, so obviously, they will get hurt. But it’s a very, very small part of global GDP.

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