Bitcoin's application as a form of real money is likely easier said than done, according to a new report from Goldman Sachs.
In a report exploring the cryptocurrency as money in the classic sense, the firm said that while bitcoin could hypothetically thrive as we see the dollar, yen or euro, it would likely face a whole host of fundamental challenges.
While Goldman Sachs found some evidence that demand for cryptocurrencies comes from regions with "currency instability and/or capital controls," other data point to pure retail speculation. Of course, bitcoin in the past year has been widely seen as a speculative market as the cryptocurrency soared quadruple digits in 2017 alone.
"In practice, Bitcoin and other digital currencies face significant practical hurdles to wider adoptionâincluding potential government regulation and excessive volatility. So could Bitcoin succeed as a form of money? In theory, yes, if it proves capable of facilitating transactions at a low cost and/or providing better risk-adjusted returns for portfolios. In practice, however, the bar looks high. The currencies of most developed market economies already deliver these monetary services quite well. And if blockchain technologies go mainstream, as seems likely, the bar will look even higher," wrote a team led by Zach Pandl, co-head of foreign exchange and emerging markets strategy, in a note published Wednesday.
"That said, Bitcoin (and cryptocurrencies more generally) may offer viable alternatives in countries and corners of the financial system where the traditional services of money are inadequately supplied," Pandl wrote. He added in an email to CNBC on Thursday that cryptocurrencies will need to "clear many regulatory hurdles before gaining broader acceptance."
The report was published a day prior to news that South Korea could be readying a bill cracking down on cryptocurrency trading in the country, perhaps an outright ban. The news sent bitcoin and myriad cryptocurrency peers like ethereum tumbling overnight.
Bitcoin pared some of its losses by midday Thursday, however, trading just above $14,000 per coin on Coinbase.
It would appear the cryptocurrency universe's reaction to the news in and of itself confirms a theme Pandl and his co-author, Charles P. Himmelberg, highlighted in their report: that while cryptocurrencies could serve as attractive hedges against inflation or stores of value due to their lack of central bank backing, the group's stunning volatility makes them ill-suited as money substitutes.
"The recent fluctuations in Bitcoin and its relatives suggest they are much too volatile to serve as money. Volatility would likely need to come down dramatically (either naturally or through the widespread adoption of cryptocurrencies designed to better stabilize purchasing power via supply adjustments) before we see broader adoption," the team wrote.
Australia Warns of Fake 'Tax Collectors' Demanding Bitcoin
The Australian Taxation Office (ATO) issued a warning about would-be scammers trying to con people out of their cryptocurrency.
Since late last year, scammers have been calling Australians and impe
Bitcoin briefly falls below $8,000 after Google says it will ban cryptocurrency ads
Bitcoin prices briefly fell below $8,000 on Wednesday following news that Google, the world's largest online ad provider, plans to ban cryptocurrency advertising. Facebook, the second largest
Crypto Is a 'Crock'? Twitter Reacts to House ICO Hearing
Despite the overall measured tone among lawmakers at Wednesday's House subcommittee hearing on initial coin offerings, a few members of the panel made inflammatory statements.
Social media users re
UK Crypto Exchange to Launch Bitcoin Futures Contracts
A British cryptocurrency exchange is planning to enter the bitcoin futures market.
CoinfloorEX, a London-based exchange founded in 2013, announced Wednesday that it would launch bitcoin futures con
Congressional hearing on cryptocurrencies devolves into bitcoin bash fest
A House Financial Services subcommittee met Wednesday in what was supposed to be an overview of the cryptocurrency landscape. The two-hour hearing raised more questions than answers, and shined a
Square closes near all-time high after analyst compares stock to early days of Amazon
Shares of Square hit a new all-time intraday high Wednesday, jumping more than 5 percent after an analyst report compared the stock to 'Amazon in its early days.' Shares closed at $54.60
Bitcoin Price Sheds $800 In Drop to 1-Month Low
Bitcoin hit a one-month low on Wednesday as its price slipped below $8,300 during afternoon trading.
CoinDesk's Bitcoin Price Index (BPI) had fallen to as low as $8,287.98 as of press time, represe
Brazilian Officials Caught Using Bitcoin in $22 Million Scam
Police officials in Rio de Janerio have uncovered a money laundering scheme in which state officials siphoned off money intended for prison supplies, using bitcoin to exchange some of the proceeds.