In the wake of (now discredited) news that Goldman Sachs is shelving its plans for a cryptocurrency trading desk, the two biggest cryptocurrencies, Bitcoin and Ethereum, dipped sharply in value.
At time of writing, Ethereum was trading at US$230.58, down 20% from its value one year ago.
Bitcoin’s value was briefly in freefall on Wednesday (US time) trading, but it has since steadied somewhat and its trading at US$6,498.54, down 7.5% from one week ago. Its value has fluctuated wildly but those who have remained on the rollercoaster are still way up; its year-on-year numbers are defying market gravity, having gained 41.7% from its value last year.
The market’s biggest digital coins dropped sharply amid a report that Goldman Sachs is pulling back on near-term plans to set up a crypto trading desk https://t.co/lg9bol3n8h
— Bloomberg Crypto (@crypto) September 5, 2018
The market may have reacted to reports Goldman Sachs had abandoned its cryptocurrency trading desk
The plunge in value followed reports that Goldman Sach was about to walk away from its cryptocurrency trading desk, but analysts do not believe the dramatic downturn can be solely attributed to that news.
Goldman Sachs CFO Martin Chavez has recently clarified its position, calling the early reports “fake news” but reiterating that there is no timeline for the desk to become operational. Fidelity Investments, which manages more than US$2 trillion in asets, is also planning to establish its own cryptocurrency exchange.
Some have suggested there may be an element of panic selling from those holding cryptocurrency.
Joost van der Burgt of the Dutch National Bank said he anticipated Bitcoin would undergo at least one more market correction before it possibly rallies again. He said there was previously a strong correlation between the leading cryptocurrency’s ranking in Google search activity and its trading price but in 2018 this link was not as pronounced.
— Financial Post (@financialpost) September 5, 2018
Was this week’s crypto crash a short-term blip or part of a larger trend?
Other figures in the finance world have expressed pessimism about the long-term future of cryptocurrencies. Nouriel Roubini, a Senior Economist in the Clinton administration who famously predicted the global financial crisis, rubbished Bitcoin as “bulls***” and a classic bubble earlier this year. He also said many cryptocurrencies were even worse than Bitcoin.
Jordan Belfort, the ‘Wolf of Wall Street’, has also warned investors to stay away from cryptocurency before its value crashes to nothing. Berkshire Hathaway CEO Warren Buffett is another outspoken crypto sceptic.
Ethereum outperformed even the surging Bitcoin last year but has not fully crossed over into the financial mainstream. A number of initial coin offerings utilised its blockchain, but many have since floundered or been uncovered as frauds.
“When people saw the trends in ICOs as they kept going up, it’s easy to understand why people think this could be a long-term store of value,” Kyle Chapman, a Cosimo Ventures analyst told CNBC. “That was the appeal for it, and that’s why you saw the extreme growth last year.”