Bank Of England Deputy Calls For Urgent Regulation On Cryptocurrencies Like Bitcoin
Bank Of England Deputy Wants Urgent Regulation Of Cryptocurrencies Like Bitcoin
As the price of Bitcoin climbed to $57,700, the Bank of England deputy governor Sir Jon Cunliffe said Cryptocurrencies need regulation as a “matter of urgency”.
Crypto technologies do not pose a risk to financial stability at the moment, but there are “very good reasons” to think that this might not be the case for much longer, Sir Jon said in a speech.
A future collapse in the price of cryptocurrency could spread through markets, he warned. A severe fall in the value of crypto-assets – for example, to zero – could force investors who have taken on debt with brokers to have to find cash or sell other assets to pay them.
“Similarly, there is the possibility of contagion,” he said. “A large fall in crypto valuations could affect investor risk sentiment more broadly, causing investors to sell other assets that are judged to be risky and those perceived to have a similar investor base.”
“Interconnectedness creates the possibility that shocks are transmitted through the financial system,” he added.
In the past year, crypto-assets have grown around 200% in value from just under $800bn (£580bn) to $2.3tn (£1.7tn).
While this is relatively small in the context of the $250tn global financial system, the 2008 financial crisis was triggered by the sub-prime sector which was valued then at $1.2tn, Sir John said.
Most crypto-assets, such as Bitcoin, are not backed up in the real world by assets or commodities, but strings of computer code, and make up 95% of the $2.3tn. As a result, they are volatile, he said.
Connections between cryptocurrencies and the traditional financial system are also growing as big investors, hedge funds and banks become more involved, Sir Jon said.
“Bringing the crypto world effectively within the regulatory perimeter will help ensure that the potentially very large benefits of the application of this technology to finance can flourish in a sustainable way,” he added. Source: BBC.
China recently banned all Crypto trading, having previously outlawed Crypto, mining to avoid a similar risks as well as any challenge to their markets and own digital currency.
Central banks and major governments will not allow Cryptocurrency to replace the currency which they control. Crypto is not recognised or even taxed as currency.
The Bank of England previously advised that people should only invest money into Crypto that they could afford to lose. When you borrow to buy Crypto or other volatile assets such as stocks and shares – a practice usually known as gambling – you risk losing more than your original stake.
Before the 1929 stock market crash, people were able to borrow to buy stocks using the stock as collateral. When the price dropped by 70%, the broker made a margin call demanding repayment which pushed thousands of people into bankruptcy.
With inflation eating away the buying power of savings where can you invest for higher returns without risk? The answer is that all investment carries a degree of risk. Even money on deposit in a bank is at risk if the bank fails, although most governments have some sort of deposit protection scheme in place.
Cryptocurrency is a high-risk investment, and some would call it speculation. Investing in the stock market can also be risky, as values can go down as well as up. Blue-chip shares, in major well-established companies, are less risky than smaller companies or start up tech firms for instance.
Property investment can be risky especially if you don’t know what you are doing, like buying blind at an auction because you’ve watch ‘Homes Under The Hammer”!
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