Goldman Sachs: Bitcoin Could Be a Drag on 2018 Economy

January 4, 2018         By: Steven Anderson

Easily one of the biggest stories of 2017 was the meteoric rise of cryptocurrency, particularly bitcoin, which went from around $1,000 at the beginning of the year to briefly touch $20,000 before retracting backward to its current levels of just shy of $14,000. Even as these gains were realized, though, there were many who believed it was only a matter of time until catastrophe struck. A new voice has joined in: Jan Hatzius, Goldman Sachs economist, who believes that cryptocurrency may prove one of the biggest drags on the 2018 economy.

It’s not just cryptocurrency that has Hatzius worried, though; Hatzius also noted in the report “10 Questions for 2018” that “assets valuations in some areas—especially credit—have risen to high levels by historical standards….” That might seem like a non-issue—don’t they often?—but Hatzius notes, and not incorrectly, that such issues can cause “financial imbalances”. This is especially true in boom markets like the recent one for cryptocurrency.

Hatzius further notes that cryptocurrency is showing some “speculative” signs, a point assented by secretary of the Commonwealth of Massachusetts William Galvin, who declared cryptocurrency to be “entirely speculation,” as “…proven by the high gyrations of the value.”

Some would dispute that point, of course—just ask, who’s currently selling items in bitcoin—but there’s a certain validity to it, especially given predictions from DataTrek Research that peg bitcoin trading anywhere between $6,500 and $22,000 in 2018.

Certainly, Hatzius has a point here. After all, if bitcoin’s value collapses—even beyond DataTrek’s projected $6,500—it could mean significant losses for many who traded in the cryptocurrency. Given that there were people in 2017 who were mortgaging their houses for cash to buy bitcoin, losses that substantial could have serious effects in other market sectors. After all, someone who just lost a third to two-thirds of their home’s value trading bitcoin probably isn’t interested in buying cars or taking vacations. Considering we just saw some impressive consumer confidence from the holiday shopping season, we likely want to see that carry on in consumer goods and things that make jobs.

Hatzius’ own word here is, of course, speculation. However, it’s speculation with a sound logical base, so to anyone out there trading cryptocurrency, it’s worth remembering that keeping your head about you is a sound practical principle.