Goldman is Wrong About Cryptos Going to Zero

Goldman has done it once again. Another round of FUD has been unleashed, as they claim that most if not all cryptos will go to zero. Here’s our reaction to their investor note.

Recently, Steve Strongin, head of Goldman Sachs global investment research, released a note to investors that was picked up by the media. In this note, Goldman stated that most, if not all, cryptocurrencies will likely go to zero, since they have no intrinsic value and the crypto market is not rational. This decidedly negative tone is nothing new for Goldman as they stated in October last year that Bitcoin is not the new gold. Coming off the heels of a steep early February crash, this provocative message is likely to spook a few investors. Let’s take a deeper dive into Goldman’s reasoning.

Survival of the Fittest?

Even the most hardcore blockchain enthusiasts have been surprised at the plethora of altcoins that have entered the market and garnered sky-high valuations relative to their usefulness to society. Coins like Dentacoin (a cryptocurrency for dentists) and Dogecoin (literally a meme cryptocurrency) have managed to exceed the market cap of many large companies. Although there are quite a few promising altcoins, they are vastly outnumbered by projects that are driven by pure speculation.

In Goldman’s note, they liken the current crypto boom to the late 90s internet bubble. If that is the case, then there are many examples of the next Most in the cryptocurrency community would agree with Goldman in this respect. The pure monkey-dart FOMO (“fear of missing out”) approach of late 2017 must be replaced by careful selection of coins with groundbreaking technology and partnerships with established businesses. It should come as no surprise that many of the vaporware and literal ponzi scheme coins will eventually die out.

Cryptos BTC

No Intrinsic Value?

Another point in the Goldman note was that Bitcoin and other cryptocurrencies have no intrinsic value. While this may be an effective argument for equities, it doesn’t explain why we assign such high value to chunks of metal like gold bars. Furthermore, while the first generation of coins like Bitcoin serve primarily as stores of value or forms of transaction, the next generations of coins, like Ethereum and beyond, serve as platforms upon which smart contracts and decentralized apps are built. In our opinion, the usefulness of cryptocurrencies is perhaps limited in scope, but the possibilities for blockchain technology are endless.

Any place where databases are used, like logistics, supply chain, even medical records, are slowly but surely exploring and adopting blockchain technology. The ability to store immutable records on a ledger that can be easily accessed has endless applications. In this respect, the moniker cryptocurrency is a misnomer these days, as blockchain can be thought of as more of an ecosystem for a variety of applications than merely a currency. It should come as no surprise why titans of industry like IBM (IBM), Amazon (NASDAQ:AMZN), and Disney (DIS) have devoted resources to invest in blockchain or even develop their own proprietary blockchains.

Irrational Market

Goldman writes that the cryptocurrency market behaves irrationally because all coins tend to move in the same direction at once. Most crypto investors would agree that this is a problem, as one bad day for Bitcoin can spell disaster for the whole market. However, there is a simple reason why this is the case: most altcoin crypto exchanges offer only a few trading pairs, so you have to use a “big name” crypto like Bitcoin and Ethereum to buy altcoins. There are only a few fiat to crypto gateways, but most altcoins rely on Bitcoin or Ethereum markets. Thus, it should come as no surprise that coins are correlated. The advent of decentralized exchanges and more coins getting fiat pairings should help alleviate this issue.

The final Goldman point is a common one among crypto critics. Basically, the question is: what’s stopping anyone from creating a cryptocurrency and entering the market? It seems that there are almost no barriers to entry and that coins with very little utility can be listed on exchanges and command high market caps. Although it is true that barriers to entry are minimal, it is actually extremely difficult to crack the very top of the market. The coins in the top 10 in market cap have weathered multiple downturns, hostile attacks from hackers, and threats of government bans to gain significant adoption and show promises of extensive use cases.

We have formulated a metric to gauge the concentration in the cryptocurrency market called CCI.

This metric shows that there is a very high proportion of market share captured by a few of the top coins. While new coins are hitting the market and grabbing headlines for their high market cap to utility ratio, the vast majority of value is still being assigned to the ‘blue chip’ cryptos. In fact, if we apply this same calculation to the constituents of NASDAQ, we get a concentration score of around 40%. This suggests that crypto is even more concentrated than the stock market and not just a grab bag of coins being assigned random values.

Although there is a downward trend in the CCI and we expect this trend to continue in the short-term, we think that eventually there will be reversal of this trend, as coins with superior technology and ‘killer apps’ are uncovered and dominate the market. This goes back to the point of doing research and thinking about the technology and applications of coins, rather than hopping on the latest trending coin.


Goldman’s note to investors was not unwarranted, as even crypto enthusiasts would agree with their assessments of problems in the space, particularly the prevalence of altcoins with little utility and the high degree of correlation between coins. However, overall, Goldman is still viewing cryptocurrencies as a store of value and missing some of the very exciting applications that are possible with the blockchain technology that provide real-world value. In addition, Goldman is dismissing the market as completely irrational, whereas it is actually quite efficient in allocation of value to the top projects.

We believe in the long-term future of blockchain technology and have already begun to see some very exciting applications of it. We caution investors to do extensive research before investing in any coin and encourage investors to find projects that have solid use cases. Many of the coins that hit the market may indeed fall to zero once the hype dies down, but there will be coins that not only survive, but prosper.

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