BoE deputy says cryptocurrency collapse could spread to markets

Stack of British pound coins falling on list of share prices

In a recent speech, the Bank of England (BoE) deputy governor made plea for urgent cryptocurrency regulation. Otherwise, he fears that we could be looking at some ugly movements in the markets. Here’s what was said and what he fears could happen if crypto is left to run wild.

[top_pitch]

What did the BoE deputy governor say about cryptocurrency?

During his speech, Jon Cunliffe made clear his stance on digital assets and his fears for the future.

He believes that assets like Bitcoin are becoming increasingly intertwined with the financial world at an unacceptably fast pace. And like a bad speed date, he fears this mingling could lead to disappointment for everyone. 

This seemed to contrast with a recent statement from the central bank stating that crypto presents a limited risk to financial stability.

But perhaps the deputy governor wanted to make clear and reiterate the idea that just because cryptocurrency doesn’t present an immediate threat does not mean it won’t lead to future problems.

How could cryptocurrency trouble spread through markets?

When cryptocurrencies were operating completely outside the financial system, they posed less of a threat.

Now you have a lot more people invested. And not just small-time investors like me and you. There are companies, hedge funds, banks and high-net-worth individuals throwing money into tokens.

The risk is that if the cryptocurrency market falls, there will be a domino effect. It could cause a market sell-off as investors sell other investments to cover losses.

There’s also the problem that losing money could make investors more hesitant to invest in safer investments, which is bad news for everyone.

[middle_pitch]

Why can’t they just regulate crypto?

Many digital assets are not under the control of a single person or company.

So how do you regulate something that no one controls? That’s just one of the tough obstacles regulators face. Other notable issues with UK regulation includes:

  • The international aspect. These are global projects, so if the UK cracked down hard on cryptocurrency, most investors would just move their assets abroad.
  • Heavy regulation could mean the UK would be missing out on potential taxes and business opportunities.
  • This is a quickly changing technology. Introducing new laws is a slow process and any laws are likely to struggle to keep up with the pace of evolution.

How can you safely invest outside cryptocurrency?

Cryptocurrency is a space that’s quickly developing, and I’m sure will play an important role in our lives at some point. However, that could be a long way off. And for the moment, not even the Bank of England knows how to deal with this tech.

Luckily, putting your money into emerging technology isn’t the only way to invest. There are plenty of safer – and, more importantly – regulated ways to invest your money. Doing something like buying shares also means you can own part of a company rather than a piece of code!

Managing risk is an important part of investing, and although crypto is interesting, the fact that it poses a risk to global markets is definitely cause for concern.

The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

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