What's going on?
According to the Bank of International Settlements (BIS) – essentially a bank for central banks – cryptocurrencies like Bitcoin could potentially break the internet. Say what?
What does this mean?
The Swiss firm’s 24-page report released on Sunday argues that cryptocurrency prices fluctuate too much, the process of mining new coins consumes too much electricity, and that cryptocurrencies are too susceptible to fraud and manipulation. Worryingly, BIS believes that if Bitcoin processed all the world’s digital retail transactions, the sheer volume of communication could bring the internet to a halt. Uh oh.
It’s perhaps worth noting that BIS may have an ulterior motive for sharing its views – it’s jointly owned by the central banks of multiple countries, and could arguably become less powerful in a world where decentralized currencies (like Bitcoin and co.) are more prominent.
Why should I care?
For markets: Investors appear to be siding with BIS today.
The price of Bitcoin fell by 1% on Monday. Some investors may have agreed with BIS’s assessment that certain currencies may not be able to scale widely enough to fulfil crypto’s promise. However, it’s not out of the ordinary – the value of cryptos can swing quickly and by large amounts (i.e. they’re volatile). While 2017 was a successful year for cryptocurrency prices, 2018 has been somewhat tougher – cryptos have lost roughly half their value so far this year.
The bigger picture: Changing regulation may mean cryptocurrencies are around for the long term.
Kim Kardashian hasn’t actually broken the internet (yet), but Bitcoin might. That said, increasing regulation of cryptocurrency investment platforms might make investing in the space feel safer – and therefore more attractive to large investors. Crypto exchange Coinbase and Circle Internet Financial (whose investors include finance heavyweight Goldman Sachs) are in talks with regulators to further legitimize their crypto businesses and expand the range of services they can offer customers.