Bitcoin too small to threaten world economy, says Bank of England deputy
Bitcoin is too small to pose a risk to the global economy, according to a senior Bank of England executive, as the cryptocurrency passed the $10,000 barrier for the first time.
Bitcoin has risen tenfold in value so far this year, the largest gain of all asset classes, prompting sceptics to declare it a classic speculative bubble. The digital currency topped $10,800 (£8,060) on Wednesday morning.
The rapid growth in the value and popularity of the virtual currency, which emerged in the aftermath of the financial crisis and allows people to bypass banks and traditional payment methods to pay for goods and services, has forced central banks, financial regulators and institutions to consider how to respond.
Sir Jon Cunliffe, the BoE deputy governor, told BBC Radio 5 Live: “This is not a currency in the accepted sense. There’s no central bank that stands behind it. For me it’s much more like a commodity.
“This is not at a size where it’s a macroeconomic risk to the global economy, but when prices are moving like that, my view would be investors need to do their homework.”
Banks and other financial institutions have been concerned about bitcoin’s early associations with money laundering and online crime, and it has not been adopted by any government.
The JP Morgan chief executive, Jamie Dimon, has described bitcoin as “worse than tulips”, in reference to a famous market bubble from the 1600s. Speaking in September, Dimon said the digital currency was a fraud that would ultimately blow up, adding it was only fit for use by drug dealers, murderers and people living in places such as North Korea.
However, according to reports last week, JP Morgan is considering
whether to help its own clients bet on the price of bitcoin through proposed futures contracts to be offered by CME Group. The bank would collect fees for providing such a service.
Dennis de Jong, the managing director at the online currency broker UFX, said the value of the cryptocurrency was likely to rise further.
“Until bitcoin becomes a commonly used payment source, it’s very possible that it could hit $15,000 and beyond based on its current desirability,” he said. “If bitcoin falls into wider circulation, and becomes accepted into more conventional funds and exchanges, we are likely to see a normalisation of its value.”
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Gold-plated souvenir bitcoin coins. The cryptocurrency’s value rose past $10,000 this week. Photograph: Justin Tallis/AFP/Getty Images