Bitcoin, the world's largest cryptocurrency by market capitalization, has created a market frenzy in recent months. As bitcoin and other digital currencies such as ethereum and ripple continue their volatile runs, many of the most prominent names in the finance and tech world are weighing in the mania. Some are going as far as to discredit the digital currency bitcoin as a "fraud," while others say it can easily double, if not triple by the end of 2018. 

On Wednesday, analysts at Goldman Sachs released a nine-page report to clients titled "Bitcoin as Money." Goldman's Zach Pandl indicated that he expects the cryptocurrency market to continue to grow in the new year, but that doesn't mean everyone will get rich from it. He noted that as the financial mainstream takes digital currency more seriously, a rules-based system is likely, at least for bitcoin trading. More companies will join the likes of Expedia Inc. (EXPE) in allowing users to pay in bitcoin, he wrote, noting that the currency will only succeed as a form of money if it is capable of facilitating transactions at a low cost or can provide better risk-adjusted returns for portfolios. (See also: Buffett: Cryptocurrency Will Come to a Bad End.)

Areas of Promise

Pandl stated that the demand for cryptocurrencies should be related to "dissatisfaction" with regulatory monetary systems in economies with unstable currencies or restrictions around foreign exchange use. He highlighted Nigeria, South Africa and Ghana, where recent Google Trends show search concentration for "bitcoin." 

If crypto as currency pans out, the digital currencies should have low expected returns in the long run, contradicting their recent surge. Despite its sell-off into the new year, bitcoin is still up nearly 1,600% over the past 12 months as it drops below the $14,000 mark.

"Our working assumption is that long-run cryptocurrency returns should be equal to—or slightly below—growth in global real output," wrote Pandl, pegging that growth rate in the low single-digits. "Digital currencies should be thought of as low/zero return or hedge-like assets, akin to gold." (See also: Bitcoin Funds Made 3,000% Profit in 2017: HFR.)

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