The head of the World Bank has compared cryptocurrencies to “Ponzi schemes”.
“In terms of using Bitcoin or some of the cryptocurrencies, we are also looking at it, but I’m told the vast majority of cryptocurrencies are basically Ponzi schemes,” World Bank Group President Jim Yong Kim said at an event in Washington. “It’s still not really clear how it’s going to work.”
At the same time, however, he said the World Bank is is “looking really carefully” at blockchain technology, the ledger software that makes makes bitcoin and other cryptocurrencies possible.
He said the World Bank was hoping it be used in developing countries to “follow the money more effectively” and reduce corruption.
His warning coincides with Goldman Sachs declaring that the value of most cryptocurrencies could fall to zero.
In a note comparing the current market to the “internet bubble of the late 1990s”, Goldman Sachs’ global head of investment research Steve Strongin said that cryptocurrencies don’t have “intrinsic value”.
He said it was “unlikely” whether any of today’s digital currencies are likely to survive in the long run.
“The high correlation between the different cryptocurrencies worries me,” Strongin said. “Because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero.”
He noted that that few of Internet bubble’s high fliers survived after the late 1990s.
“People seem to be trading cryptocurrencies as though they’re all going to survive, or at least maintain their value. Contrary to what one would expect in a rational market, new currencies don’t seem to reduce the value of old currencies; they all seem to move as a single asset class,” he said.
“But if you believe this is a ‘few-winners take-most’ situation, then the potential for retirement depreciation should be taken into account. And because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero.”
The Goldman note comes after a massive sell-off in Bitcoin which has seen the price fall below $6000 for the first time since November.