By Michael Jarvis, London UK
The Governor of the Bank of England this week sounded what might have been his most sombre caution regarding crypto-currencies, calling them “dangerous".
"I'm sceptical about crypto-assets, frankly,” Andrew Bailey told a hearing of the UK parliament’s Treasury Committee, “because they're dangerous and there's a huge enthusiasm out there."
The Treasury Committee’s hearing came in the wake of recent severe turmoil in the crypto-currencies market which saw its value tumble by more than 40 per cent in the past few weeks after hitting record highs in April.
It’s not the first time the Bank of England Governor has voiced his reservations about the volatility of the crypto-currencies.
He had previously warned that people should only invest in it if they are prepared to lose all their money.
Mr Bailey has also cautioned that assets such as bitcoin fall short of the standard requirements and oversight applied to standard cash, digital payments and other transactions supervised by the Bank of England and other central banks.
According to the governor of the UK's central bank, in general, financial innovation is good for the economy, but investors need to maintain vigilance about the underlying assets they create.
It’s also not the first time that the House of Commons Treasury Committee has investigated the crypto-currencies sector.
In 2018 it published a report on the UK regulatory landscape for crypto-assets in which it strongly recommended regulation of what it calls the “wild west” crypto-asset market.
At that time the Committee said that was necessary to improve consumer protection and anti-money laundering standards.
According to the highly-respected London financial district newspaper, CityAM: “Of perhaps even more concern, is how traditional banking institutions may now turn this chink in Bitcoin’s armour to their advantage.”
It says, “Some of the big players are already beginning to encircle their prey, with the European Central Bank adopting the alpha male role by describing 'grounds for concern' over bitcoin’s 'exorbitant carbon footprint'. The Italian central bank was also quick to point out its own payment system’s environmental impact was some 40,000 times smaller than that of BTC.”
BTC is a so-called ‘webwallet’, part of the complex technology called blockchain which supports trading in bitcoins.
Tighter regulations are also reported to be under consideration by the US Securities and Exchange Commission (SEC), the Federal Reserve and the Treasury Department.
Federal Reserve chairman Jerome Powell has also said that the explosive growth and recent dramatic collapse of cryptocurrencies “pose some risks to both individual investors and the broader financial system”.
He however confirmed that the Federal Reserve is looking into whether it should establish a cryptocurrency of its own.
The recent dramatic tumble in the crypto-currency market followed comments by billionaire entrepreneur Elon Musk, one of its main proponents, about the environmental impact of the technology driving bitcoin and other crypto-currencies.
Mr Musk has also being accused of creating panic in the market by what some analysts regard as conflicting perspectives on the state of the sector.
The crash also coincides with a tough stance adopted by China which is reported to be considering new regulations for the sector.
However, some experts suggest that China, where many bitcoin mines - the computer farms that run the system - operate could be looking and making major inroads into the market with its own crypto-currencies.
Earlier this week, cryptocurrencies were regaining some of their lost value.
However, some experts say it may take the sector much longer to recover from the damage to its reputation and whether a new regulated system evolves from the latest uncertainties.
Bitcoin is legal tender in the U.S, Japan, the U.K, and several other developed countries.
Cayman established its own regulatory framework for crypto-currencies last year with the Virtual Asset (Service Providers) Law 2020.