Bank of England Governor Mark Carney is calling for tighter regulation of digital and virtual currencies and cryptocurrencies. Carney harshly criticized the rise of cryptocurrencies in a speech this past Friday insisting that there were inherent risks associated with investments in digital currencies. He also stated that the huge price moves and volatility in cryptocurrencies like Bitcoin were “speculative mania” and the costs to mine Bitcoin are “enormous.” But he insisted it poses “no material risk” to financial stability – at least for now.
Though he criticized the current state of cryptocurrency regulations, he did commend blockchain technology and its potential to improve the accuracy, efficiency, and security of payments.
The volatility of cryptocurrency may be why Carney also slammed the ability of cryptocurrencies to fulfill the role of money, saying they are “failing” as a medium of exchange and are “proving poor short-term stores of value.” Many cryptocurrency enthusiasts have likened bitcoin to gold because it has a limited supply and needs to be digitally “mined.” But the volatility in its price that saw it hit a high above $19,000 last year and crash back below $6,000 in February 2018 has prompted many to call it a bubble, including Carney.
Carney said the Bank of England’s Financial Policy Committee is considering the risks that cryptocurrencies pose for the U.K.’s financial stability. But given the small size of the digital coin market, when compared to global GDP, the risk does not seem to be big. “At present, in my view, crypto-assets do not appear to pose material risks to financial stability,” Carney said. “Looking ahead, financial stability risks could rise if retail participation significantly increased or linkages with the formal financial sector grew without material improvements in market integrity, anti-money laundering standards, and cyber defenses.”
Carney is concerned with the harm that cryptocurrencies can cause to investors and consumers with its lax regulations. Many think that the recent extreme fluctuations in the value cryptocurrencies such as bitcoin and Ethereum prove that they are not safe long-term investments-and that regulations should be put in place. Concerns over the volatility of digital currencies, however, should not dissuade adoption of blockchain technologies which have the potential to transform a number of industries.