The Bank of England has warned investors and traders that bitcoin will likely become worthless, and anyone with money in cryptocurrency should be aware they could lose everything.
The BoE argues that bitcoin has no value despite trading on crypto exchanges at $47,629 for a coin.
Bitcoin was changing hands for a record $66,971 only a month ago but has since slipped in price after a sell-off prompted by the first news about the COVID-19 Omicron variant.
Deputy governor Sir Jon Cunliffe explained the BoE is concerned about the risks attached to crypto investing.
“Their price can vary quite considerably and bitcoins could theoretically or practically drop to zero,” he said.
Table of Contents
Average bitcoin investment is £300
Although several ‘whales’ – investors with large amounts of cash – dominate the market, the BoE reckons that around 2.3 million people (0.1 per cent of households) in the UK have staked an average of £300 against cryptocurrency, with most of that tied up in bitcoin, ethereum or Binance coin.
Globally, the crypto market is worth around $2.6 trillion or 1 per cent of all financial assets.
A study by the Bank reveals cryptocurrency has little impact on the UK’s financial system, but this risk would increase if crypto and traditional financial services become more interconnected.
“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,” said the report.
BoE staffer Thomas Belsham claims that bitcoin will remain a volatile and worthless investment in a separate blog.
What game theory says about bitcoin
“The problem is that, unlike traditional forms of money, Bitcoin isn’t used to price things other than itself. As Bitcoiners themselves are fond of saying, ‘one Bitcoin = one Bitcoin’. But a tautology does not a currency make,” he wrote.
Belsham argues that the limit of 21 million bitcoin attracts investors because demand outruns availability. Around 19 million bitcoin have been mined, and releasing the rest from the blockchain could take until 2140.
“Scarcity may even, ultimately, render bitcoin worthless. 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,” Belsham wrote.
Seven Crypto Ads Banned
Advertising watchdogs face a cryptocurrency red alert because many adverts for digital financial services and investments fail to follow consumer protection rules.
The Advertising Standards Authority (ASA) has banned seven adverts and intends to publish new standards for cryptocurrency advertising.
The ASA said all the adverts were “banned for irresponsibly taking advantage of consumers’ inexperience and for failing to illustrate the risk of the investment.”
The blocked ads were:
- Coinburp: A Twitter page for Coinburp, a cryptocurrency trading platform.
- eToro (UK): A paid-for display ad for eToro, a stocks and cryptocurrency trading platform.
- Payward: A digital poster for Kraken, an online cryptocurrency exchange.
- Exmo Exchange: A YouTube video promoting cryptocurrency exchange Exmo
- Luno Money: An in-app ad for Luno, a cryptocurrency exchange service
- Coinbase Europe: A paid-for Facebook ad for Coinbase, a cryptocurrency exchange platform
- Papa John’s GB: A promotion offering £10 of free bitcoin on the Papa John’s pizza restaurant chain’s website and in a Twitter post
ASA director of complaints and investigations, Miles Lockwood, said: “Cryptoassets are a red-alert priority issue for us. Consumers need to know about the risks of investing in crypto assets. Companies should ensure that their ads aren’t misleading or socially irresponsible by taking advantage of consumers’ lack of awareness around these complex and volatile products.”
Lockwood added that the ASA would review adverts for cryptocurrencies, NFTs and fan tokens over the next few months.
$778 Trillion Bitcoin Mistake
The cryptoverse was a little madder than usual when usually trustworthy data sources showed a single bitcoin as worth $778,000,000,000 for a short time instead of the rea; price of $48,000.
Other prices were wrongly displayed, including Tether and USD Coin – showing values of $14 million and $12 million instead of $1.
Both organisations confirmed the error only impacted the value displayed for a few minutes, and trades continued unaffected.
Technical staff quickly identified and fixed the problem. Coinbase apologised for the misleading values and explained no customers had lost money.
Crypto exchanges collapse
Businesses that hold crypto for customers will need licensing soon as the Australian government moves to regulate digital currency exchanges.
In recent weeks, two Australian exchanges have gone to the wall.
The first was Mycryptowallet, which went into administration owing customers hundreds of thousands of dollars a week ago.
Exchange ACX has run into trouble owing creditors around $50 million.
The news was quickly followed by treasurer Josh Frydenburg promising a consultation on regulating cryptocurrency exchanges in the New Year.
Here are a selected few articles that are related and maybe of interest: