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Goldman Sachs Takes Bearish View on Bitcoin

One of the key financial stories of 2017 has been the incredible rise of Bitcoin. The cryptocurrency is up by about 180% since the beginning of this year, with record high price points coming one after another. And still, though Bitcoin's price is hovering around $2700, many big banks and hedge funds have been reluctant to get involved with the digital currency. In an important step for the integration of Bitcoin into the wider financial world, Goldman Sachs started covering the currency this week. However, in its earliest reports, Goldman suggests that Bitcoin may not be able to maintain its ascendant status for long.

Goldman Calls Bitcoin "Broadly Heavy"

In a report issued at the beginning of this week, Goldman's chief technician, Sheba Jafari, determined that "the balance of signals are looking broadly heavy." Goldman is "wary of a near-term top ahead of 3,134. Consider re-establishing bullish exposure between 2,330 and no lower than 1,915." Put in other terms, it appears that Goldman has taken a bearish view on Bitcoin. The report continued, "the market has come close (enough?) to reaching its extended (2.618) target for a 3rd of V-waves from the inception low at 3,134. It's on track to forming a bearish key day reversal if today's close settles below 2,749." (Related: Bitcoin Hits $3000)

Bitcoin finished Monday at $2,599, significantly below the threshold of $2,749 that Goldman indicated. According to Jafari's report, a close below $2,475 would potentially cause damage to the technical picture. "Both daily/weekly oscillators are diverging negatively."

What Should Investors Do?

The question for most investors, then, is what to do with Bitcoin holdings. Jafari isn't the only analyst suggesting that Bitcoin may be reaching for a short-term peak. Billionaire Mark Cuban indicated his belief that there is a Bitcoin bubble in effect, saying that he was cautious whenever "everyone is bragging about how easy that are making money" in a tweet from last week.

And yet, there are many proponents of the digital currency who believe that a bubble is a ludicrous idea. Those believing in the long-term strength of Bitcoin believe it is shielded from a bubble because of its decentralized status, its strong security measures including advanced encryption and blockchain ledgers which allow for the tracking and tracing of all transactions, including fraudulent ones, and its as-yet-untapped potential within the broader financial world. The fact of the matter remains, however, that Bitcoin, and cryptocurrencies more broadly, has yet to prove its place within that larger world. There is no question that Bitcoin has risen to impressive heights of popularity, but whether it will be able to maintain those peaks, and whether it will fully integrate itself into the investment world, remains to be seen.

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