Bitcoin as a viable transaction medium may not be so far-fetched after all, according to Goldman Sachs Group. The investment behemoth touted the digital asset class as a valuable tool in regions inflicted with high inflation.
Cryptocurrency as Unit of Transaction
Although bitcoin payments may be less viable in countries like the U.S., they could be an invaluable tool in regions such as sub-Saharan Africa, according to Goldman Sachs.
In these regions, national currencies have lost significant value due to high inflation, leading to an influx of foreign notes. As Bloomberg notes, more than 90% of deposits and loans in the Democratic Republic of the Congo are made in foreign money. Zimbabwe, which faced one of the most dramatic episodes of hyper-inflation in history, has demonetized its national currency in the wake of the financial crisis.
“In recent decades the U.S.
dollar has served its purpose relatively well,” Goldman Sachs strategists Zach Pandl and Charles Himmelberg wrote in a report that was quoted by Bloomberg Technology.
But “in those countries and corners of the financial system where the traditional services of money are inadequately supplied, Bitcoin (and cryptocurrencies more generally) may offer viable alternatives.”
However, the analysts were quick to caution traders that more transactions in cryptocurrency wouldn’t necessarily lead to the same dramatic price gains of the last 12 months.
“Our working assumption is that long-run cryptocurrency returns should be equal to (or slightly below) growth in global real output—a number in the low single digits,” they said.
“Thus, digital currencies should be thought of as low/zero return or hedge-like assets, akin to gold or certain other metals.”
Efforts to make bitcoin more transaction-friendly resulted in a hard fork last summer that introduced bitcoin cash, a coin that now trades for more than $2,700. The dramatic rise in bitcoin has inspired thousands of other companies to launch their own cryptocurrencies.
According to data provider CoinMarketCap, there are more than 1,400 coins on the market today. Forty-three of those companies have a market cap of $1 billion or more.
Goldman Sachs is venturing into the cryptocurrency market, according to sources quoted by Bloomberg.
The investment manager plans to launch its own bitcoin trading desk by the end of June, becoming the first large Wall Street firm to make markets in digital currencies.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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