Cryptocurrencies have been all over the major news and polls in 2017. Most surveys and research centers say that the majority of leading European economists do not believe that these currencies currently pose any threat to the stability of the financial system, nor will they become one, even in the next few years. However, many panel members support increased regulation of these currencies, primarily because of fears that anonymity in digital currency transactions facilitates tax evasion and other criminal financial activities.
In 2017, Bitcoin’s price has risen many times, and the number of Google searches for “bitcoin” increased by thousands of times. There are now more than 2000 digital currency ATMs worldwide, in the United States (1.107), Canada (293), the United Kingdom (97) and Austria (91) as more are being continuously opened.
A huge number of people and locations around the world have written about Bitcoin and whether its price rises are just a bubble, and what would happen if the bubble burst. There are about 17.8 million pages on Google that speak of “the Bitcoin bubble.” Many others talk about whether digital currencies pose a threat to the financial system, and therefore deserve more regulatory oversight by law makers.
In 2012, the ECB published a paper which noted, under the current situation:
– Virtual currencies do not pose a risk to price stability, provided that money creation remains low.
– They tend to be highly unstable, but they cannot compromise financial stability, given their limited link to the real economy, the low volume of their trade, and the wider reluctance of traders to do so.
In 2017, the European Central Bank, in a new working paper, returned to the same topic, noting:
– With regard to the ECB’s monetary policy, price stability, financial stability and smooth operation of payment and supervision systems, risk identification depends on the size of the issued currency and its relation to the real economy – including through regulated institutions dealing with virtual currencies – Circulation and user acceptance.
– For the moment, all these risk drivers have remained low, which implies that there is no material risk for any of the central bank’s tasks as yet.
An important argument that the ECB and central banks hold is that digital currencies are extremely small and have too little connection to other financial markets in order to be seen as a risk. As per a report by Wall Street Journal, the first 1,000 currencies sum up just around $350 billion – less than Facebook Inc. Therefore, even if everything were to crash tomorrow, it would be barely noticeable by the banks. One of the factors that keeps digital currencies still relatively small lays in the technology constrains, which limit the use of cryptocurrencies.
A less optimistic view is that the increase in the size and circulation of the capitalization of Bitcoin reflects the acceleration of professionalism in investing in digital currency markets, leading to the disruption of financial markets that pose risks to price stability and the financial system.
However, digital currencies are heading in paths that may be difficult to manage. In the recent months “Tobam Asset Management” has launched the Bitcoin first mutual fund in Europe. Meanwhile, regulators in the United States gave the green light to two of the world’s largest futures exchanges – the Chicago Mercantile Exchange (CME) and the Chicago Exchange (CBOE) to list Bitcoin futures.
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