Bank of England (BOE) Governor Mark Carney has called for greater regulation of cryptocurrencies, calling the huge price moves and volatility “speculative mania.”
“The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system. Being part of the financial system brings enormous privileges, but with them great responsibilities,” Carney said in a speech on Friday.
He talked up the potential of the underlying technology, known as blockchain or distributed ledger technology, to improve accuracy, efficiency and security across payments, clearing and settlement.
But Carney said that the “speculative mania” around cryptocurrencies means further regulation is needed.
“A better path would be to regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system,” Carney said.
When asked if there would be a global push for regulation around digital coins, he said it would likely be on a country-by-country basis. “I would have a greater expectation for a series of national steps rather than some big coordinated approach.”
Carney also slammed the ability for cryptocurrencies to fulfil the role of money, saying they are “failing” as a medium of exchange and are “proving poor short-term stores of value.”
And he took aim at the volatility in cryptocurrency markets.
“Indeed, the average volatility of the top 10 cryptocurrencies by market capitalization was more than 25 times that of the U.S. equities market in 2017,” Carney said.
“This extreme volatility reflects in part that cryptocurrencies have neither intrinsic value nor any external backing. Their worth rests on beliefs regarding their future supply and demand —ultimately, whether they will be successful as money.”
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, has prompted many to call it a bubble, including Carney.
“Thus far, however, rather than such a sober assessment of future prospects, the prices of many cryptocurrencies have exhibited the classic hallmarks of bubbles, including new paradigm justifications, broadening retail enthusiasm and extrapolative price expectations reliant in part on finding the greater fool,” the BOE governor said.
“Far from being strengths, the fixed supply rules of cryptocurrencies such as bitcoin are serious deficiencies.”
Carney said the BOE’s Financial Policy Committee is considering the risks posed to the U.K.’s financial stability by cryptocurrencies. 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.”
