empty
22.07.2021 12:46 PM
How does Goldman Sachs forecast the movements of cryptocurrencies?

This image is no longer relevant

It is not easy to predict cryptocurrencies compared to predicting stocks. A stock is a part of a company, where one can view its revenue, costs, profit, and trends to determine its value.

Cryptocurrency analysis is more ambiguous since the value of coins is usually not related to income, profit, or any of the usual fundamental factors that affect the valuation. This has more to do with public opinion, known as the network effect.

In this week's research report published by the Goldman Sachs Economic Research group, the authors of which are Isabella Rosenberg and Zach Pandl considered the use of some attributes similar to the fundamental indicators of stocks.

Earlier, the authors wrote that equating cryptocurrency with gold was the basis of the forecast, but the difference is that gold does not have user networks.

To estimate the number of users on the network using blockchain addresses, Goldman analysts compared this with the market capitalization of currencies. For example: how many coins are in circulation, multiplied by the value of the coin. This comparison was made for Bitcoin, Bitcoin Cash, Dash, Ethereum, Ethereum Classic, Litecoin, XRP/Ripple, and Cash.

After analyzing it, they wrote in the cross-sectional data that they observe a clear correlation between market capitalization and the size of the network.

However, the question is how big the correlation is. The network effect is often observed in ratios in which the value increases by the number of nodes squared. Thus, 10 nodes will give the value 100, and 9 - 81. Thanks to this theory, the value correlates with the number of connections.

But for cryptocurrency assets, there is already a real value – market capitalization. Therefore, Goldman analysts studied the relationship between the number of participants and market capitalization.

Analysts write that the market capitalization of the cryptocurrency with the size of the network correlated positively one to one. The average growth curve they calculated based on historical data is something like value = 1.4 power users.

According to analysts, the market capitalization of Bitcoin far exceeds its fundamental indicators. For the main cryptocurrency, there is a clear deviation from the value that it should have. The value of bitcoin has increased by 520% over the past few years compared to the 2018 average, while its network has grown only from 60% to 100%.

Some of these factors, such as moods, further complicate the situation. But how many people actually use a crypto asset is a form of sentiment – whether they join the network and create an address or buy or sell cryptocurrency.

Irina Yanina,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

USD/JPY. Analysis and Forecast

At the start of the week, following the release of a weaker Japanese PMI, the yen came under pressure. This, combined with news of narrower and less aggressive retaliatory tariffs

Irina Yanina 13:20 2025-03-24 UTC+2

XAU/USD. Analysis and Forecast

Today, gold prices remain low but are holding above the psychological level of $3000, which serves as an important support. News that emerged over the weekend indicates that U.S. President

Irina Yanina 10:25 2025-03-24 UTC+2

The Market Fell Into a Pit It Dug for Others

What drives the markets? Fear? Greed? At the moment, disappointment is far more significant. Investors are realizing that Donald Trump's tariff policy will not lead to anything good

Marek Petkovich 09:23 2025-03-24 UTC+2

Markets Are Tired of Falling. Investors Look for Growth Triggers (CFD contracts on #SPX and #NDX futures may rise on positive U.S. economic data)

Global financial markets continue to swing back and forth amid uncertainty over the actual impact on the economies of various countries targeted by Donald Trump's tariff hikes, which have prompted

Pati Gani 09:23 2025-03-24 UTC+2

EUR/USD Weekly Preview: PMI and IFO Indices, U.S. GDP, and Core PCE Index

The upcoming week's economic calendar is packed with important fundamental events. Macroeconomic reports will either help EUR/USD sellers consolidate within the 1.07 range or enable buyers to hold above

Irina Manzenko 06:52 2025-03-24 UTC+2

What to Pay Attention to on March 24? A Breakdown of Fundamental Events for Beginners

Eight macroeconomic events are scheduled for Monday. Preliminary March readings of business activity indices in the manufacturing and services sectors will be published in Germany, the Eurozone, the U.S

Paolo Greco 06:08 2025-03-24 UTC+2

USD/JPY. Analysis and Forecast

Today, following the release of data showing a February slowdown in the national Consumer Price Index (CPI), the Japanese yen continues to trade with a negative tone, creating uncertainty

Irina Yanina 11:07 2025-03-21 UTC+2

US stock market getting ready for zero hour

The Federal Reserve has done all it can to calm the markets, but in 2025, the spotlight has shifted away from the central bank. The S&P 500 has brushed

Marek Petkovich 09:20 2025-03-21 UTC+2

What to Pay Attention to on March 21? A Breakdown of Fundamental Events for Beginners

There are no scheduled macroeconomic events for Friday. The euro and the pound have finally declined against the U.S. dollar. The Federal Reserve has done its part to calm

Paolo Greco 06:06 2025-03-21 UTC+2

GBP/USD Pair Overview – March 21: The Bank of England Had No Impact on the Current Situation

The GBP/USD currency pair traded very calmly on Thursday, as on Wednesday evening. As the chart below clearly shows, volatility has recently dropped to noticeably low levels. What

Paolo Greco 04:16 2025-03-21 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.