Just when you thought it was safe once again to stick your neck into the cryptocurrency hole after Bitcoin bounced from its devastating sell-off, Goldman Sachs is predicting that most of these digital currencies would be worth as much as AltaVista today.
Oops. Most "investors" in cryptocurrencies (or cryptos if you wanna sound cool) probably won't know what AltaVista is because they would not have been born.
The rest of us "oldies" may have even used it as it was the most popular search engine at one point during the dot.com boom in the late 1990s before it was sold a couple of times and finally went the way of the digital dinosaur.
Most of today's cryptos could be heading down the same path to zero, according to an article in Bloomberg quoting Steve Strongin, the global head of research for Goldman Sachs. He warns that most will lose all their value as they are replaced by a small number of future competitors.
"Are any of today's cryptocurrencies going to be an Amazon or a Google, or will they end up like many of the now-defunct search engines? Just because we are in a speculative bubble does not mean current prices can't increase for a handful of survivors," Strongin said.
"At the same time, it probably does mean that most, if not all, will never see their recent peaks again."
There are several factors behind his bearish assessment for cryptos. Firstly, most aren't that useful at all as they have slow transaction times, poor security, and high maintenance costs.
He added that the introduction of regulated bitcoin futures has done nothing to address these root concerns and that there is no first mover advantage for the world's most recognised digital currency, which has lost about two-thirds of its value since December last year.
Furthermore, many digital currencies such as Ethereum and Ripple move in unison with bitcoin and that makes no logical sense, particularly if you consider that there are over 1,300 cryptos and accept that only a handful will last.
The other problem is that crypto investors often can't articulate what the intrinsic value is for these digital tokens.
If these factors don't bring the vast majority of cryptos to their knees, global regulation will. Central bankers and governments will not allow digital currencies to pose a systemic threat to the financial system – further limiting the usefulness of cryptos.
It should also worry you that the head of the World Bank also calls cryptos: "Ponzi schemes".
Until you can find a crypto with an intrinsic value that matches its cool name, you are better off putting capital into stocks that are backed by well-run companies.
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