Add another central bank official to the list of cryptocurrency skeptics: Jon Cunliffe, the Bank of England’s deputy governor in charge of financial stability.
In a speech Wednesday, he compared the explosive expansion of crypto assets to the booming U.S. subprime mortgage market prior to the 2008-2009 financial crisis.
“Crypto assets have grown by roughly 200% in 2021, from just under $800 billion to $2.3 trillion today,” Cunliffe said.
“As the financial crisis showed us, you don’t have to account for a large proportion of the financial sector to trigger financial stability problems — subprime was valued at around $1.2 trillion in 2008.
“When something in the financial system is growing very fast, and growing in largely unregulated space, financial stability authorities have to sit up and take notice.”
Cunliffe and other financial officials around the world have done so. U.S. Securities and Exchange Commission Chairman Gary Gensler has called digital currency markets the “Wild West.”
To be sure, “At the same time, they [authorities] need to be careful not to overreact, particularly when faced with the unfamiliar,” Cunliffe said.
“We should not classify new approaches as ‘dangerous’ simply because they are different. Innovation, technology and new players can tackle longstanding frictions and inefficiencies and reduce barriers to entry.
“Throughout history, they have been key to driving improvement and to increasing resilience in financial services.
Bottom line: “[Crypto] technologies offer a prospect of radical improvements in financial services,” he said.
“However, while the financial stability risks are still limited, their current applications are now a financial stability concern.”
The bitcoin debate continues to rage among bulls and bears.
Bulls say bitcoin’s use as a medium of exchange in normal commercial transactions will grow.
Bears point out that few consumers and companies will want to use such an unstable currency.
Bitcoin bulls say the digital asset is a hedge against inflation and a store of value. Bears note that the only thing bitcoin has proved to be so far is a vehicle for speculation.
The bulls also maintain that the currency can protect investors against declines in other markets, like stocks. The bears note that since bitcoin was created in 2009, no sustained drop in stocks has occurred to test that theory.