Bitcoin could lose all its value soon, says Bank of England

The Bank of England on Monday warned banks and other regulated financial firms to be “particularly careful” about holding volatile cryptocurrencies until regulators put in place new rules.

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Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England (BoE) has warned of cryptocurrencies such as Bitcoin rapidly reaching the threshold of mainstream adoption. He is particularly concerned about the ripple effect that a sudden price correction could have on the established financial system.

The institution therefore asked commercial banks and other financial firms to adopt a ” particularly cautious and circumspect approach », until rules are put in place to govern the digital asset industry.

Also read: He claims to be the creator of Bitcoin and wins a lawsuit worth 48 billion euros

The Bank of England doesn’t like Bitcoin very much

Like most other institutions, the BoE does not consider bitcoin or other cryptocurrencies to meet the general definition of a currency, and therefore reiterated its warning that cryptocurrencies had no intrinsic value and investors could lose all their money. We had also been able to see the price of Bitcoin fall to less than 45,000 dollars a week ago, far from the record at 69,000 dollars at the beginning of November. Currently, a Bitcoin is trading for 48,600 dollars, or 43,000 euros.

Crypto is a technology that is used for many different things in the financial system, but they are unbacked assets that have nothing behind them and their price can vary very widely. said Jon Cunliffe as he spoke on the BBC’s Today programme. ” Their price can vary considerably and [les bitcoins] could theoretically or practically drop to zero “, he added.

It is estimated that around 2.3 million adults in Britain own cryptoassets such as Bitcoin or Ethereum, and that each holds an average amount of 300 pounds sterling, or about 353 euros. However, these cryptocurrencies still represent only 0.1% of household net financial wealth. Globally, the market capitalization of crypto assets has increased sharply since the start of 2020 to around $2.6 trillion, representing about 1% of global financial assets.

Bank of England calls for global tightening of cryptocurrency regulation

According to the BoE, regulatory and legal frameworks for crypto-assets should be strengthened domestically and globally to combat this evolving volatile market. Changes would, among other things, manage risk, encourage sustainable innovation, and maintain broader trust and integrity in the financial system “. At the current rate of growth, these assets could become more interconnected with traditional financial services and are likely to pose a number of risks.

A more regulated framework would make some cryptocurrencies more stable, so that they can be used as a means of payment. The Bank of England thus wishes to bring the systemic stable currencies into the regulatory field of the bank.

However, new regulations could drive down bitcoin price, and thus cause a lot of money to be lost for all those who have invested in cryptocurrency. A sharp decline in crypto-asset valuations could also cause institutional investors to sell other financial assets and potentially transmit shocks through the financial system, weakening the economy.

Some countries such as El Salvador are betting heavily on Bitcoin. Indeed, the country became the first in the world to adopt Bitcoin as legal tender, and recently created the first city 100% dedicated to cryptocurrency. No capital gains, income, wages or property taxes will be levied in this city, except VAT.

Analysts such as Mick McGlone, senior strategist at Bloomberg, expect the digital currency’s price to eventually hit $100,000 next year. According to him, the current economic context should indeed benefit alternative assets, such as Bitcoin and cryptocurrencies, and traditional safe havens, such as gold and precious metals. However, it is not impossible that the evolution of Bitcoin will be held back both nationally and globally.

Source: The Guardian

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