Monday, November 29, 2021

End of the cryptocurrency boom?

By Irom Al-Khattecheh, GeoMet

Whether one thinks that cryptocurrencies are overhyped or their value remains an open question, it is something that has caused a great deal of global unease. That said, recent incidents, such as the Mt. Gox bitcoin exchange being hacked by the tune of $650 million and the discovery of big holes in the supply chain of Ethereum, suggest that the blip could turn into a bubble once more.

The problem is that cryptocurrencies are unsupervised (think click fraud) and -given the lack of regulation – they can be bought with little or no regulation. While this could be seen as an advantage to investors (who really can set their own price), the potential for currency speculation can be detrimental to some countries’ financial stability.

While this is something that all currencies – even US dollars – face, many emerging markets, specifically in Asia, are viewed as a potential Achilles heel for lenders in the event of an extreme loss of confidence in the financial system and its currencies. And while it is often easy to see the day of reckoning coming for Bitcoin when one reads the wide-ranging interviews conducted with some of the world’s leading banks and cryptocurrency experts, the recent decision of Bank of China to state that all cryptocurrency transactions are illegal is likely to be a stark wake-up call to jurisdictions across the globe.

While Bank of China’s announcement is the latest step to start suppressing the frenzy around these assets, it is only the final step in the battle against money laundering.

Although the announcement by the central bank was not as strong in design as the recent ones by the US Treasury and Bank of England – the latter of which even gained several fintech companies arrested for not being licensed – there are still several aspects of the regulation that are worrying.

While it is popular to speculate that cryptocurrencies are simply a casino game, it is also true that many claims regarding how much money these assets are supporting in helping to lubricate the global economy are unsubstantiated.

Nonetheless, the media excitement surrounding bitcoin in particular is far too strong. And until cryptocurrency regulation takes hold, as it seems to be slowly doing in many Asian countries such as China, we could still be in for a long hot chase.

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