Regulation looms large as resistance to cryptocurrency mania grows

The comments by Andrew Cornell, Managing Editor of ANZ publication bluenotes, follow a report by the Bank for International Settlements (BIS) which referred to cryptocurrencies as a “combination of a bubble, a Ponzi scheme and an environmental disaster”.

Cornell writes in a blog that there has been a growing resistance to cryptocurrencies, which has contributed to speculators cashing out. The BIS, for example, warned they have a limited ability to satisfy the signature property of money, are unable to scale with transaction demand and fluctuate greatly in value.

The bank regulatory body said the emergence of cryptocurrencies calls for a globally coordinated approach to prevent abuses and strictly limit interconnections with regulated financial institutions.“In brief, like it or not, cryptocurrencies will be regulated, heavily,” Cornell writes.

In a speech at the BIS Annual Meeting, the bank’s economic adviser and Head of Research, Hyun Song Shin, pointed out that a payment being recorded in the ledger does not guarantee it is final and irrevocable. He said bookkeepers could collude and rewrite history, thereby erasing the payment.

“In making anonymity a central attraction, cryptocurrencies essentially market themselves as the system of choice for illicit activities which such governance measures are designed to cut off,” says Cornell. “Institutions simply cannot support the anonymous transfer of funds while at the same time satisfying regulation they know their customer.”

Cornell refers to one of his local eateries, which he says has “a suspiciously high turnover of usually young, poorly trained staff” and has recently started accepting Bitcoin. “It’s hard to say what’s riskier, the food safety standards of their takeaway or the potential currency plunge you’re exposed to in buying the Bitcoin needed to pay for the takeaway,” he argues.

He concludes that while a sustainable asset class may emerge from the current cryptocurrency mania, “as far as control of currencies being ripped from the grasp of central banks and financial regulators, it is hard to go past the BIS view that cryptocurrency mania is a combination of a bubble, a Ponzi scheme and an environmental disaster.”