In a recent Bloomberg op-ed Goldman Sachs Group Inc.’s global head of investment research, Steve Strongin, warned investors that their crypto holdings could be about tank in value.
The piece says:
“Most digital currencies are unlikely to survive in their current form, and investors should prepare for coins to lose all their value.”
It’s a provocative prediction. Cryptocurrencies are in scarce supply, which is one of the fundamental attributes that gives precious metals and stones their value. However, these new currencies, such as Bitcoin, offer the added utility of being able to transfer value to anyone in the world in minutes. I can’t do that with my American Golden Eagle coins. If I could, they probably wouldn’t be shoved somewhere in the back of my desk drawer.
The utility of these new currency networks is what gives cryptos their value. The networks, underpinned by blockchain, offer practical functionality to a wide audience concerned with real time funds transfer and anonymity.
Lasting crypto value
It’s true there are a lot of digital coins in circulation, conforming to some predictions that “today’s digital coins lack long-term staying power because of slow transaction times, security challenges and high maintenance costs”.
But would you compare a blue-chip stock to a penny stock on the pink sheets? What then do we use as the benchmark for “slow” transaction times?
Even blue-chip stocks can take days to settle after each trade. Even more germane is the time it takes to send money internationally, often three or four days, and the incurring of fees that cannot be determined until after the money is sent. International wires, or the utility called Correspondent Banking that today underpins most of the world’s international money transfers, is one of the slowest and least efficient financial networks in the world. And yet the global financial system depends on it every day.
So if the utility of these new currency networks offers an improvement from days to minutes over today’s conventional international money transfer standards, then it’s clear that both the networks and the currencies have lasting value.
My belief is that cryptos are not investments, they’re financial utilities. And while they are technically similar to coin offerings, the difference between cryptocurrencies and ICOs are as different as stocks and bonds and cash.
Before you buy, or speak out for or against cryptos, seek to uncover the true utility that each crypto or coin offers. That’s not investment advice. It’s just common sense.
Jesse Lund is a global vice president of blockchain for IBM