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European Regulators Set Sights On Cryptocurrencies
Traders Magazine Online News, March 13, 2018
Regulators across Europe have been discussing possible oversight of cryptocurrencies even though the region only represents a small share of global trading volumes.
Mark Carney, governor of the Bank of England, gave a speech on 2 March on the future of money and how the UK central bank can help manage the potential risks, as well as realise the promise of, more than a thousand virtual or cryptocurrencies.
He said the cryptocurrencies have to be judged against the entire ecosystem - including the exchanges on which they are traded, the miners who create new coins, verify transactions and update ledgers, and the wallet providers who offer custodian services.
“The long, charitable answer is that cryptocurrencies act as money, at best, only for some people and to a limited extent, and even then only in parallel with the traditional currencies of the users,” added Carney. “The short answer is they are failing.”
He noted that the daily standard deviation of Bitcoin was ten times that of sterling over the last five years and the average volatility of the top ten cryptocurrencies by market capitalisation was more than 25 times that of the US equities market last year.
“This extreme volatility reflects in part that cryptocurrencies have neither intrinsic value nor any external backing,” added Carney.
In addition, in the UK no major high street or online retailer accepts Bitcoin as payment, and the Bank of England is not aware of any business that accepts Bitcoins in payments that also maintains its accounts in Bitcoin.
The Bank of England’s Financial Policy Committee is currently considering the risks posed to UK financial stability. As a part of this exercise the global Financial Stability Board will report to the G20 in Argentina later this month on the financial stability implications of cryptoassets. Carney said: “At present, in my view, cryptoassets do not appear to pose material risks to financial stability.”
Cryptoassets are small, relative to the financial system and in addition, major UK financial institutions have minimal exposures to the cryptoasset ecosystem.
“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 defences,” added Carney.
Carney continued that some jurisdictions have banned cryptoassets, such as China, which had been one of the most active markets. He recommended that the cryptoasset ecosystem should be held to the same standards as the rest of the financial system.
“In my view, holding cryptoasset exchanges to the same rigorous standards as those that trade securities would address a major underlap in the regulatory approach,” he added.
If any such regulation is introduced, this will lead to more volatility and price movements in cryptocurrencies. Furthermore, the news is often broken on social media before traditional news sources.
Carney noted that US derivatives exchanges have begun trading bitcoin futures. When the CME announced on 31 October last year that they were planning to launch bitcoin futures, Dataminr for Finance sent clients an urgent alert. Dataminr highlights that in the hours following this alert Bitcoin went on to rise approximately 2% and more than 4% overnight as the news hit Asian markets. Since then, Nasdaq has also said it intends to launch Bitcoin futures this year.
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