Bitcoin Could Trigger Financial Collapse, Warns Bank of England MP | Crypto-currencies

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A senior Bank of England politician has warned that digital currencies like bitcoin could trigger a financial collapse unless governments introduce tough regulations.

Comparing the growth of cryptocurrencies to the skyrocketing value of subprime mortgages in the United States prior to the 2008 financial crash, Vice Governor Sir Jon Cunliffe said there was a danger of financial markets being shaken. in a few years by an event of a similar magnitude.

Bitcoin and its closest rival, Ethereum, lost value earlier this year, but gained ground to all-time highs. Just five years ago, a single bitcoin was worth around $ 700 (513) compared to a current value of $ 56,000. Ethereum has almost doubled in value since July to reach $ 3,500.

Cunliffe has played a central role in the oversight of cryptocurrencies over the past few years as an adviser to the G20 Financial Stability Board and the global central bank advisory body, the Geneva-based Bank for International Settlements.

A highly respected former Whitehall Mandarin with contacts in political and central banking circles, his warning is likely to attract the attention of senior Treasury officials in the UK, Washington and Tokyo.

Cryptocurrency coins have risen in value by around 200% this year, from just under $ 800 billion to $ 2.3 billion, and have grown from $ 16 billion five years ago. .

Cunliffe said that while the financial sector was more robust than in 2008 and governments should be wary of overreacting to financial innovations, there was reason to be concerned that traders were using digital currencies that could be worthless overnight.

Of course, $ 2.3 billion has to be seen in the context of the $ 250 billion global financial system. But as the financial crisis has shown us, it is not necessary to represent a large part of the financial sector to trigger financial stability problems. Subprime mortgages were valued at around $ 1.2 billion in 2008, he said.

Speculation on subprime mortgages in the United States has been fueled by low-income households using ultra-low interest rate mortgages.

Cunliffe said there was evidence speculators were starting to borrow money to buy crypto assets, increasing the risk of a crash infecting the wider financial system.

Currently, surveys suggest that cryptocurrency spending was only supported by around $ 40 billion in borrowed funds. But there was evidence that traders were increasingly speculating on the future value of digital currencies.

He said traders on the Chicago Mercantile Exchange process $ 2 billion in crypto purchases per day, and the popularity of futures exchanges attracts hedge funds and other speculators.

Most of these assets have no intrinsic value and are vulnerable to significant price corrections. The crypto world is starting to connect with the traditional financial system and we are seeing the emergence of leveraged players. And, most importantly, it is happening in a largely unregulated space, he said.

Risks to financial stability are currently relatively small but could grow very quickly if, as I expect, this area continues to develop and expand at a sustained pace. The magnitude of these risks will largely depend on the nature and speed of the response from regulators and supervisors, he added.

There was also a growing conflict between the need to develop standards in a careful and painstaking process and the rapid growth of digital commerce.

He said the guidelines drafted by the bodies that regulate global financial markets took two years to draft, during which time digital currency trading platforms had grown sixteen times.

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