Crypto Speculation, Credit Imbalances to Shadow U.S. Economy in 2018: Goldman Sachs

The U.S. economy will shift into higher gear next year, but financial imbalances in the credit markets and cryptocurrencies could weigh on an otherwise robust outlook, according to Goldman Sachs Group Inc. analyst Jan Hartzius.

10 Questions for 2018

In a newly released report, the Goldman analyst predicted faster economic growth and lower unemployment for 2018, but said crypto market speculation could become a major source of instability.

“Asset valuations in some areas – especially credit – have risen to high levels by historical standards,” Hatzius said in the “10 Questions for 2018” report issued Friday. “While we have not seen the type of large credit expansions that would be most worrisome for [Federal Reserve] officials concerned about financial imbalances, there are now some signs of speculative behavior in financial markets, e.g. the cryptocurrency boom.”

Among Hartzius’ more concrete predictions were GDP growth of 2.6% and an unemployment rate of 3.5%. The U.S. economy expanded more than 3% annually in each of the past two quarters, marking the fastest six months of expansion in three years. For November, the jobless rate was unchanged at 4.1%, a level that is generally consistent with the Fed’s definition of full employment. Core inflation and average wage growth are also projected to rise compared to this year.

2017: The Year Cryptos Went Mainstream

It’s not difficult to see why Goldman Sachs is concerned about the crypto market’s valuation. Bitcoin peaked near $20,000 earlier this month, a 20-fold increase compared to the start of the year. Assets such as Ripple XRP have gained more than 30,000% this year.

Mainstream adoption of cryptocurrencies has nurtured an industry now valued at more than $600 billion. The growth and widespread adoption of initial coin offerings (ICOs) – a controversial crowdfunding model that allows businesses to raise capital by issuing cryptocurrencies – suggests the market still has room to grow. ICOs have raised more than $5 billion this year, compared to just $90 million in all of 2016.

Bitcoin’s most ardent supporters believe institutional adoption of the asset class will take the market even higher in the short term. Investors Cameron and Tyler Winklevoss believe bitcoin will increase another 20 times from levels seen this month.

“We think bitcoin is gold 2.0,” Cameron told Fox Business earlier this month. “It’s a store of value, so today it’s about a $US300 billion market cap, gold is at $US6 trillion, so we think it could very well go up another 20 times from today.”

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 


Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi