Leading banker slams bitcoin ‘bubble’ as value remains shaky

7 Feb 2018

What does the future hold for bitcoin? Image: Yuri Shebalius/Shutterstock

Banking figurehead Agustín Carstens criticises bitcoin at speaking engagement.

It was merely a few weeks ago that a single bitcoin hit an all-time price high of $19,783.06, rising more than 5pc in just 24 hours. In a year of growing public awareness of the cryptocurrency, the increase compared to January 2017’s $1,000 market valuation manifested in a fevered interest in the area.

The journey has not been without some bumps in the road, however, as regulatory clampdowns and major heists peppered the narrative around bitcoin.

Major criticism aimed at digital currencies

Yesterday (6 February), Agustín Carstens, general manager for the Bank of International Settlements (BIS), slammed bitcoin at a speaking engagement at a Frankfurt university.

Carstens did not mince his words when it came to the cryptocurrency, pegging it as a “combination of a bubble, a Ponzi scheme and an environmental disaster”.

The price of bitcoin fluctuated yesterday, falling below $6,000 before recovering at $7,678.66, according to CoinDesk estimates at the time of writing.

He warned that if authorities did not act pre-emptively, “cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability”.

As Carstens is the head of the BIS – a major international banking consortium – his comments represent a clear signal that authorities will soon up the ante when it comes to regulation.

Forbes reported that Carstens said trust in bitcoin was “already evaporating” due to cyberattacks and loss of customer funds, such as the recent Coincheck heist in Tokyo.

Ban on credit card purchases

Lloyds Bank in the UK and US banks such as Citigroup and JPMorgan Chase have all forbidden customers from buying cryptocurrency with their credit cards, with a spokesperson for the latter telling CNBC that its move was due to the “volatility and risk involved”.

Carstens described the current interest in cryptocurrencies as “speculative mania”.

The US Securities and Exchange Commission (SEC) yesterday testified before the Senate regarding digital currencies. While the SEC already polices ICOs, its chair Jay Clayton said it was exploring “whether increased federal regulation of cryptocurrency trading platforms is necessary or appropriate”.

According to Reuters, the SEC could ask Congress to pass legislation to boost oversight of virtual currencies amid concerns about the emerging asset class.

India’s finance minister, Arun Jaitley, said the country wants to “eliminate the use” of cryptocurrencies in financing illegal activities, or as part of the payment system.

Regulatory fears likely to remain

While bitcoin has recovered somewhat from the three-month low experienced on 6 February, regulatory fears are likely to linger for the time being.

More than $550bn of value was wiped off the cryptocurrency market in just under a month and bitcoin is down approximately 70pc from its pre-Christmas high, according to CNBC.

Across the board, virtual currencies have taken a beating, but the blockchain technology underpinning them is still sparking interest for a wider range of use cases.

Ellen Tannam was a journalist with Silicon Republic, covering all manner of business and tech subjects