Bank of England’s Cunliffe Warns Crypto Is ‘Prone to Collapse’

At the British High Commissioner’s residence in Singapore, Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England (BOE), discussed cryptocurrency risks and regulations this week.

The Bank of England executive warns of:

“Financial assets with no intrinsic value … are only worth what the next buyer will pay. They are therefore inherently volatile, very vulnerable to sentiment and prone to collapse.”

He explained that some crypto assets such as bitcoin, are purely speculative with no backing. He also re-emphasized his previous warning that you must “be prepared to lose all of your money”,  when you invest in crypto assets.

The recent volatility in crypto markets has not posed a risk to the overall financial system, according to The British central banker. He noted that crypto may not be “integrated enough” into the rest of the financial system to be an “immediate systemic risk.”

Cunliffe however, affirmed that the boundaries between crypto and the traditional financial system will “increasingly become blurred” and without precaution, systemic risks would emerge, especially when crypto activity and its connection to banks and other markets continue to grow. He stressed that lawmakers need to “get on with the job” and bring crypto within the “regulatory perimeter.”

Cunliffe quoted:

“The interesting question for regulators is not what will happen next to the value of crypto assets, but what do we need to do to ensure that … prospective innovation … can happen without giving rise to increasing and potentially systemic risks.”

The Bank of England deputy governor for financial stability highlighted that crypto regulation “must be grounded in the iron principle of ‘same risk, same regulatory outcome.’” He further said:

“Implicit in our regulatory standards and frameworks are the levels of risk mitigation we have judged necessary.”

“Where we cannot apply regulation in exactly the same way, we must ensure we achieve the same level of risk mitigation,” he elaborated, proposing that activities should be stopped “if and when for certain crypto-related activities this proves not to be possible.”

In a similar context, Federal Reserve Vice Chair Lael Brainard similarly said last week that the crypto financial system is “susceptible to the same risks” as traditional finance. The Fed official added: “Future financial resilience will be greatly enhanced if we ensure the regulatory perimeter encompasses the crypto financial system and reflects the principle of same risk, same disclosure, same regulatory outcome.”

Also last week, Bank of England Governor Andrew Bailey also told U.K. lawmakers that cryptocurrencies have no intrinsic value, warning that unbacked crypto assets are “very high risk.”