issuing a warning to investors regarding the risks associated with digital currencies, adding that bitcoin could be “worthless”, as a result of some of its attractive features. Recently, the central bank’s financial policy committee, which was set up in the wake of the 2008 financial crisis, noted that crypto assets pose little direct threat to the stability of United Kingdom’s financial system. But it went on to warn that given the rapid pace of growth seen in such digital currencies, they were likely to become more interconnected with traditional financial services, thereby posing a number of risks to the country’s financial system.
Accordingly, the apex bank called on major institutions to take a cautious approach in adopting crypto assets and to pay close attention to developments in this booming market. “Enhanced regulatory and law enforcement frameworks, both domestically and at a global level, are needed to influence developments in these fast-growing markets in order to manage risks, encourage sustainable innovation and maintain broader trust and integrity in the financial system,” it said.
According to Thomas Belsham, a Senior Press Officer at the BoE, one of the attractive features of Bitcoin is its scarcity, which is limited to 21 million. But this same feature embedded into its design “may even, ultimately, render Bitcoin worthless,” he said.
There are about 19 million bitcoin currently in circulation, and it is not expected reach is ultimate number until February 2140. Accordingly, Belsham warned that it would become harder to sustain this system over time. “Simple game theory tells us that a process of backward induction should, really, at some point, induce the smart money to get out. And were that to happen, investors really should be prepared to lose everything. Eventually,” he noted.
