ECB exec: Bitcoin is 'not money' and 'like Mr Ponzi’s schemes'
Download his Full Speech here
One of the European Central Bank (ECB)'s most senior policymaker says that cryptocurrencies are not money and compared them to Ponzi schemes — but said some good may come from the technological advances that underpin them.
Yves Mersch, a member of the ECB’s executive board, said the central bank shared the views voiced by Agustín Carstens, the head of the Bank for International Settlements, who on Monday condemned bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster.”
“We at the ECB are fully in line with his views and we have similar worries,” he told Bloomberg TV.
Later, when Mersch spoke at the Official Monetary and Financial Institutions Forum in London, he called for “global answers” to “safeguard the integrity of financial sector services”, adding: “Resolute ring-fencing measures might be needed.”
He said bitcoin was “far inferior to existing payment options" because it was slow and expensive. Bitcoin transactions can easily take several hours to process. “At these speeds, if you bought a bunch of tulips with bitcoin they may well have wilted by the time the transaction was confirmed.”
He ended his speech on a more positive note. “Virtual currencies are not money, nor will they be for the foreseeable future,” he said. “But just because the initial euphoria and hype subsequently fade, it does not mean that the innovation is without virtue, even if early market leaders may not last the distance.”
Bitcoin allows people to bypass banks and traditional payment methods to pay for goods and services. The price rose 12% to $8,498 on Thursday. It has traded wildly in recent weeks, having started the year at $13,880, with investors fretting about potential intervention by regulators.
Bitcoin surged 900% last year, making it the best-performing asset of 2017, and hit a peak of almost $20,000 before Christmas.
Goldman Sachs’ global head of investment research, Steve Strongin, also warned this week that most, if not all, of today’s digital currencies were unlikely to survive in their current form. “The high correlation between the different cryptocurrencies worries me,” he said. “Because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero.”
He said digital coins had slow transaction times, security challenges and high maintenance costs, and added that the introduction of regulated bitcoin futures on a Chicago exchange had failed to address such concerns.
“Are any of today’s cryptocurrencies going to be an Amazon or a Google, or will they end up like many of the now-defunct search engines? Just because we are in a speculative bubble does not mean current prices can’t increase for a handful of survivors. At the same time, it probably does mean that most, if not all, will never see their recent peaks again.”
Strongin sounded more positive about the blockchain technology that underlies digital currencies, saying it could help improve financial ledgers (a complete record of financial transactions). But he also cautioned that current technology did not offer the speed required for market transactions.