When the General Manager of the Bank for International Settlements, the world’s central banks’ central bank, talks about cryptocurrencies, it may be worth paying attention. It’s probably a pretty good indication where the world’s powers that be want cryptocurrencies to go. From Wolf Richter at wolfstreet.com:
“If authorities do not act preemptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability.”
The official crackdown on the entire cryptocurrency space got a new and broader framework from Agustín Carstens, General Manager of the Bank for International Settlements (BIS) and former governor of the Bank of Mexico. In a lecture in Frankfurt on Tuesday, he let fly some real zingers interspersed with indications of what is to come. He clarified the main concern – that the crypto ecosystem, as it “piggybacks” on the financial system, transfers its risks to the financial system.
Here are some excerpts from his lecture that I think are very insightful views of how bank regulators will be looking at the crypto ecosystm.
He said, “We are seeing the type of cracks and cheating that brought down other private currencies starting to appear in the House of Bitcoin”:
“In Bitcoin, these take the form of forks, a type of spin-off in which developers clone Bitcoin’s software, release it with a new name and a new coin, after possibly adding a few new features or tinkering with the algorithms’ parameters. Often, the objective is to capitalize on the public’s familiarity with Bitcoin to make some serious money, at least virtually.”
“Last year alone, 19 Bitcoin forks came out, including Bitcoin Cash, Bitcoin Gold and Bitcoin Diamond. Forks can fork again, and many more could happen. After all, it just takes a bunch of smart programmers and a catchy name.”
These multiplying cryptos “dilute the value of existing ones, to the extent such cryptocurrencies have any economic value at all,” he said. There are now over 1,500 cryptocurrencies, up from just a handful several years ago.
“Even if the supply of one type of cryptocurrency is limited, the mushrooming of so many of them means that the total supply of all forms of cryptocurrency is unlimited. Given the experience with currency debasement that has peppered history, the proliferation of such private monies should give everyone pause for thought.”