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Cryptocurrencies Failing as Money, but Technology has Promise: Bank of England Governor Mark Carney

Facebook banned adverts for cryptocurrencies last month and Carney said on Friday that younger investors, who typically invested in them, were probably less aware of the bubbles in markets that led to the 2007-09 financial crises.

He did not call for a ban, saying cryptocurrencies did not pose a risk to the financial system and instead they should be brought into the net of regulation.

“Many cryptocurrencies have exhibited the classic hallmarks of bubbles including new paradigm justifications, broadening retail enthusiasm and extrapolative price expectations reliant in part on finding the greater fool,” he said.

Carney’s call for regulation for the sector was welcomed by a well-known cryptocurrency investor. “Everybody who believes in cryptocurrencies agrees that we need regulation to move forwards, nobody wants this to be the Wild West anymore,” Michelle Mone, a co-founder of EQUI, a platform for investment in technology companies.

Carney, who heads the global rule-making body, the Financial Stability Board (FSB), expressed doubts about cryptocurrencies earlier this year and his speech, intended for a Scottish student economics conference, expanded on these.

“Crypto-assets raise a host of issues around consumer and investor protection, market integrity, money laundering, terrorism financing, tax evasion, and the circumvention of capital controls and international sanctions,” he said.Finance ministers and central bankers from the Group of 20 major world economies will meet in Buenos Aires in two weeks’ time, and cryptocurrencies are likely to be on the agenda.

However, Carney said regulations would be done on a country-by-country basis initially. This week, the European Union’s financial services chief said Brussels was ready to regulate cryptocurrencies if risks from the sector are not tackled at the global level.

Bitcoin was likened to a “Ponzi scheme” by the head of the Bank for International Settlements, Agustin Carstens, last month. And China recently banned financial institutions from handling cryptocurrencies.

Carney said that approach risked stifling potentially big opportunities to streamline payments systems, making it easier for example for people in a pub to split the cost of a round of drinks without involving the traditional banking system.

The distributed-ledger technology underlying crypto currencies could improve cash settlement in the banking system and other asset transactions, he said.

“Even if the current generation is not the answer, it is throwing down the gauntlet to the existing payment systems. These must now evolve to meet the demands of fully reliable, real-time, distributed transactions,” Carney said.

Distributed-ledger technology could also be used for tax and medical records, and business supply chains, though a central bank operated digital currency, he said.

Carney delivered the speech at Bloomberg’s London office, with a video link to Edinburgh, after heavy snow prevented him from delivering the speech as planned in the Scottish capital.

As much as Rs 4.30 lakh crore of investors’ money has been wiped out in the last five trading sessions, with Rs 1.54 lakh crore eroding on Tuesday. The BSE benchmark Sensex on Tuesday nosedived nearly 430 points to close at a nearly three-month low of 33,317 after bank stocks came under heavy selling pressure despite positive global cues.

The 30-share index Sensex slipped into a negative zone towards the fag-end to hit a low of 33,209.76 as participants booked profits at improved levels. Following the bearish trend in the broader market, the market capitalisation of BSE listed companies fell to Rs 1,44,20,606 crore at the end of today’s trading session, from Rs 1,45,75,054.23 crore on Monday.Overall, in the last five straight sessions, the index has lost nearly 1,129 points. Led by a continuous sell-off, the market capitalisation of BSE-listed companies plummeted by Rs 4,30,042.5 crore to Rs 1,44,20,606 crore in five trading sessions.

“Consolidation continues led by broad selling across all sector. Market has broken yesterday’s low while banks continue to struggle due to NPA issue, higher bond yield & cost of funds. Investors are little nervous to start accumulating and are waiting for major triggers to get direction,” said Vinod Nair, Head of Research, Geojit Financial Services Ltd.