The Bank of England has just released its twice-yearly Financial Stability Report. In the report it highlights that “highly speculative crypto assets” such as bitcoin, are becoming more in demand from large investors, but that they don’t pose enough of a threat that would require action from the bank for now.
According to the report, price volatility in cryptoassets could lead to “potential pockets of exuberance”. The report went on to say that the majority of cryptoassets were held by retail investors, but institutional investors, who were deemed to be systemically more important, were starting to gain exposure to cryptocurrencies, but that this was still at a relatively small scale.
The bank conceded that interest in cryptocurrencies was increasing from the likes of institutions, banks and key payment system operators, and that this could in turn lead to cryptoassets becoming linked to financial markets and institutions.
The BOE governor, Andrew Bailey, reiterated the bank line that investors should be very wary of cryptocurrencies, and that they could lose all of their money if they invest in such assets, given that they have “no intrinsic value”.
On cryptocurrencies in general, and their as yet small role in the financial system, Bailey commented:
“From an institutional point of view, the evidence does not point to it being a large part of the picture, but we clearly have to watch it very carefully, as we do, because it is a fast-changing landscape,”
The deputy governor of the BOE, Jon Cunliffe, echoing the words of his boss, remarked that cryptoassets were being watched carefully. The highly speculative nature of these assets meant that the bank might need to step in to protect retail investors.
He also stated that he did not think the time for action had been reached:
“From a financial stability point of view, the point at which you act is the point where you think, well actually you have a risk that is beginning to crystalise,”
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