- Reuters/Denis Balibouse
- Bank of England Governor Carney tears into bitcoin in a stinging speech and interview on Friday.
- Carney said cryptocurrencies are “failing” and are not actually currencies.
- Bitcoin has “hallmarks” of a bubble and could be heading for “a pretty brutal reckoning,” he said.
- Carney called for regulation of the space, something he says the Bank of England is looking at closely.
LONDON – Bank of England Governor Mark Carney tore into bitcoin in a stinging speech and interview on Friday, warning the digital currency could be heading for a “pretty brutal reckoning.”
Speaking to Sky News, the Governor said cryptocurrencies have “all the hallmarks of a bubble. And normally they end with a pretty brutal reckoning.”
Bitcoin rose almost 1,500% against the dollar last year and its rapid rise attracted large numbers of retail investors to space. But the digital asset has halved in value since the start of the year and many commentators suggest the entire space is unsustainable. ECB board member Yves Mersch said last month that the market is held up by investors who “believe they will find a greater fool to sell to before the inevitable crash.”
Carney said that bitcoin and other cryptocurrencies are “failing” in their key objectives and called for regulation of the space.
‘The short answer is they are failing’
Addressing whether cryptocurrencies are actually money, Carney said in his speech on Friday: “The long, charitable answer is that cryptocurrencies act as money, at best, only for some people and to a limited extent, and even then only in parallel with the traditional currencies of the users.
“The short answer is they are failing.”
Carney said bitcoin fails to pass several key tests of what a currency should be able to do. Citing the work of Scottish economist Adam Smith, Carney noted that currencies should be a store of value, a medium of exchange, and a unit of account. Bitcoin and other cryptocurrencies fail at least two of these tests, he said.
“Cryptocurrencies are proving poor short-term stores of value. Over the past five years, the daily standard deviation of Bitcoin was ten times that of sterling.
“Consider that if you had taken out a £1,000 student loan in Bitcoin in last December to pay your sterling living costs for next year, you’d be short about £500 right now. If you’d done the same last September, you’d be ahead by £2,000. That’s quite a lottery. And Bitcoin is one of the more stable cryptocurrencies.”
Cryptocurrencies also fail as a medium of exchange, Carney said.
“The most fundamental reason to be sceptical about the longer term value of cryptocurrencies is that it is not clear the extent to which they will ever become effective media of exchange,” he said.
“Currently, no major high street or online retailer accepts Bitcoin as payment in the UK, and only a handful of the top 500 US online retailers do. For those who can find someone willing to accept payment for goods and services in cryptocurrencies, the speed and cost of the transaction varies but it is generally slower and more expensive than payments in sterling.”
Carney made a similar assertion that bitcoin is “failing” in another speech last month. S&P Global Ratings argued in a recent note that cryptocurrencies are “a speculative instrument” rather than a cryptocurrency.
‘They will be regulated’
Carney called for greater regulation of cryptocurrencies in an interview with Sky News at the venue of Friday’s speech.
“There are issues for authorities who deal with money laundering, terrorist financing, and price fixing. There have been a number of incidents of theft – not just big crimes but also steady thefts from people’s wallets.”
“The operational standards of these currencies are nowhere near where they need to be,” he said. “They will be regulated in my view.”
Earlier this week it emerged that the US Securities and Exchange Commission has sent out a flurry of subpoenas to cryptocurrency companies asking for information. The move has been seen by most as a precursor to regulating the sector.
Initially slated to appear at the inaugural Scottish Economics Conference in Edinburgh, Carney was forced to deliver his speech remotely thanks to the severe weather which has hit the UK in recent days.