Bitcoin sees price surge following Elon Musk endorsement
The President of the European Central Bank (ECB), Christine Lagarde, has announced she wants to regulate cryptocurrencies. Ms Lagarde expressed her concerns and scepticism, saying: “It is not a currency. Cryptocurrencies are not money. “It is a highly speculative asset.”
The ECB President then underlined the lack of guarantees of real stability, as in the case of the euro or the dollar.
Explaining the risks consumers are exposed to, Ms Lagarde continued: “It is imperative that, if an activity is carried out by a private actor, this activity, if it is similar to money, is subject to exactly the same rules, exactly the same rations, exactly the same control mechanisms.
“So even if they are not money, but are ‘similar’ to them, the rules for cryptocurrencies and fiat currencies must be the same.”
In a recent report, the head of Oxford-based think-tank Euro Intelligence Wolfgang Munchau hit out at Ms Lagarde, arguing her comment “goes to the heart of the misunderstanding of the economics and central bank professions about the nature of Bitcoin“.
He wrote: “It will not be up to them to decide whether or not it is money.
“That question will be settled by those who use it.
“Fiat money is a social contract that exists because people trust it.
Bitcoin sparks EU panic as Lagarde’s furious attack exposes ‘widespread misunderstanding’
“The betting on Bitcoin, including Elon Musk’s €1.5billion (£1.1bn) investment, constitute a bet that this might not always be so.”
Mr Munchau noted the world may only be a couple of policy mistakes away from an environment in which the use of digital money, Bitcoin and others, could become more widespread.
He explained: “Bitcoin is not only a bet against inflation like gold or silver. It is a bet against a system in which money is used as a policy tool. It is no surprise that the launch of Bitcoin, in 2009, coincided with the advent of quantitative easing.
“The widespread misunderstanding of policy makers is that the intention of Bitcoin was never to create a rival to the euro or the dollar but to create a device that protects from economists and central bankers or governments that want to track electronic payments.
“The group of techies who started the project with an article in 2009 saw Bitcoin as a device to protect individuals from state control of all kinds – by creating a stateless currency that could be used in transactions and a store of value.
“Bitcoin was never intended to fulfil the third function of money in modern society – that of a unit of account. In that narrow sense, Lagarde is right, but that does not tell the whole story.”
Mr Munchau concluded: “The German poet Christian Morgenstern once caricatured a person driven over by a car, in denial of his imminent death:
“‘For, he reasons pointedly, that which must not, can not be.'”
President of the European Central Bank Christine Lagarde
The European Central Bank
It is not the first time Ms Lagarde has criticised Bitcoin.
Last month, the ECB President said at the Reuters Next conference: “[Bitcoin] is a highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity.”
William Mougayar, an entrepreneur, investor, blockchain researcher and advisor, echoed Mr Munchau’s report at the time.
He wrote on Twitter: “Bitcoin and cryptocurrencies are already regulated by proxy.
“[Anti-money laundering] applies to everything, and while many financial instruments are speculative, none are more transformative than cryptocurrencies.”
One of his followers replied: “They understand cryptocurrencies absolutely.
“They just fear it because they can’t put the money in their own pocket like taxes or other donations.”
Billionaire Paul Tudor Jones has warned the authorities will, as they did before, lead their own fight against private cryptocurrencies.
The ECB’s Governing Council is exploring the possibility of issuing a new central bank digital currency (CBDC), a digital euro, in an attempt to respond to the accelerating trend toward digitisation in payments.
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Also, a recent paper authored by a group of economists and policymakers from the ECB stated that introducing “a CBDC sooner rather than later could give rise to a significant first-mover advantage to its issuer”.
Bitcoin has hit record highs for a second day after Elon Musk‘s car company Tesla said it had bought about $1.5billion (£1.1bn) of the cryptocurrency.
Bitcoin rose above $48,000 (£34,820) before falling back slightly, but it remains 25 percent higher than five days ago.
Some investors took Tesla’s move as a signal that Bitcoin would become a mainstream financial asset.
However, there has been some criticism about a green car firm investing in such an energy intensive currency.
Bitcoin currently uses more energy than Argentina every year, according to analysis from the University of Cambridge.
Tesla co-founder Elon Musk
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Production of the cryptocurrency, known as “Bitcoin mining”, needs energy-hungry computer hardware and ever-greater amounts of processing power.
Mike Butcher, an editor at news website Techcrunch, tweeted: “Tesla: Sells carbon credits to buy Bitcoin, which requires as much energy (not always Green energy) as a small country to mine.”
Britain’s Financial Conduct Authority (FCA) warned about Bitcoin: “If consumers invest, they should be prepared to lose all their money.
“Some investments advertising high returns from crypto assets may not be subject to regulation beyond anti-money laundering.
“Significant price volatility, combined with the difficulties valuing [Bitcoin] reliably, place consumers at a high risk of losses.”
Express.co.uk does not give financial advice. The journalists who worked on this article do not own Bitcoin.