Cryptocurrency exchanges will be policed more rigorously by regulators and the currencies themselves could present a future risk to financial stability, the Bank of England Governor has said.
Addressing the Scottish Economics Conference in Edinburgh via a video link, Mark Carney promised a clampdown on any use of cryptocurrency exchanges for money laundering and terrorism-financing.
Unlike a traditional digital bank transfer, it is impossible to trace the ownership of cryptocurrencies such as bitcoin, making them attractive to criminals and tax evaders.
“The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system,” Mr Carney said.
“Being part of the financial system brings enormous privileges, but with them great responsibilities. In this spirit, the EU and the US are requiring crypto exchanges to meet the same anti-money laundering and counter the financing of terrorism standards as other financial institutions.
“In my view, holding crypto-asset exchanges to the same rigorous standards as those that trade securities would address a major underlap in the regulatory approach.”
Mr Carney said that, in his view, cryptocurrencies do not currently pose risks to financial security due to the small size of the market relative to the wider system.
But he warned that this might change.
“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,” he said.
“There is unease that the combination of these vulnerabilities and widening retail participation could damage the reputations of those financial intermediaries connected to crypto-asset markets. In extreme circumstances, it could even undermine confidence in the broader financial system itself, particularly if people held an unfounded belief that authorities had legitimised these activities.”
The chief executive of the UK’s Financial Conduct Authority, Andrew Bailey, warned in December that people who invest in bitcoin needed to be prepared to lose all their money given its extreme volatility and questionable fundamental value.
The price of a bitcoin shot above $19,000 (£13,800) in December, but has since come down to around $10,900.
A year ago it was worth just $1,290.
Mr Carney said that the fixed supply of bitcoin had “fed a global speculative mania that has encouraged a proliferation of new cryptocurrencies”.
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