BIS head says cryptocurrency is a ‘Ponzi scheme’ that poses a threat to financial stability
The price of bitcoin fell below $6,000 for the first time this year as a leading central banker said it posed a threat to financial stability and signalled a global clampdown on the cryptocurrency.
The new head of the Bank for International Settlements, Agustín Carstens, said bitcoin had become a combination of “a bubble, a Ponzi scheme and an environmental disaster” that threatened to undermine public trust in central banks.
“If authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability,” he said, speaking at Goethe University in Frankfurt, Germany.
Q&A
Question: What is bitcoin and is it a bad investment?
Answer: Bitcoin is the first, and the biggest, "cryptocurrency" – a decentralised tradable digital asset. Whether it is a bad investment is the big question. Bitcoin can only be used as a medium of exchange and in practice has been far more important for the dark economy than it has for most legitimate uses. The lack of any central authority makes bitcoin remarkably resilient to censorship, corruption – or regulation. That means it has attracted a range of backers, from libertarian monetarists who enjoy the idea of a currency with no inflation and no central bank, to drug dealers who like the fact that it is hard (but not impossible) to trace a bitcoin transaction back to a physical person.
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“There is a strong case for policy intervention. Appropriate authorities have a duty to educate and protect investors and consumers, and need to be prepared to act.”
Carsten, a former governor of Mexico’s central bank, said that despite the meteoric rise of bitcoin, cryptocurrencies were merely “pretending” to to be a currencies and were “unsafe”, potentially facilitating tax evasion, money laundering and criminal finance.
As the head of the body that represents the world’s central banks, his comments are the clearest sign yet that global regulators are preparing a crackdown on bitcoin, the price of which rose by 900% last year, making it the best performing asset of 2017. It hit a peak of near $20,000 in the week before Christmas.
However, it has fallen by more than 50% since the beginning of 2018, as investors grow increasingly fearful of intervention by regulators.
Bitcoin is not recognised by any central bank and currently allows people to bypass banks and traditional payment methods to pay for goods and services.
Carstens said central banks should in particular pay attention to the ties linking cryptocurrencies to real currencies, to ensure that the relationship is “not parasitic”.
His comments follow a string of warnings on bitcoin from authorities and economists around the world, including India, the US, and South Korea. Facebook has banned bitcoin and other cryptocurrency adverts on its site.
Meanwhile Lloyds Banking Group has banned customers from using its credit cards to buy bitcoin, amid fears it could be left in debt as the cryptocurrency’s value deflates.
Source: The Gaurdian
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