The Bank of England has said that Bitcoin may become “worthless” and that anybody who invests in the flagship cryptocurrency should be prepared to lose all they have invested.
On Tuesday, December 14, a member of the Bank’s staff wrote in a blog post published on its website entitled “What is a Bitcoin worth?” saying that Bitcoin does not meet many of the requirements necessary for a currency and that it is intrinsically volatile.
The staffer from the Bank’s stakeholder and media engagement division, Thomas Belsham, wrote the following:
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“Only 21 million Bitcoin will ever be created. And that might be worth something. That scarcity is why some people refer to Bitcoin as ‘digital gold’. But the very scarcity on which Bitcoin is based might also be its undoing. Its scarcity may even, ultimately, render Bitcoin worthless.”
Investors should be prepared to lose all
In general, coins are added to Bitcoin’s supply when “miners” authenticate modifications to its blockchain record, which presently stands at around 19 million. Despite the fact that the final amount of Bitcoins in circulation is not likely to be achieved until February 2140, Belsham claimed that it would become more difficult to maintain this system over time.
On this note, he added:
“Simple game theory tells us that a process of backward induction should, really, at some point, induce the smart money to get out. And were that to happen, investors really should be prepared to lose everything. Eventually.”
Risks to the established financial system
Although Bitcoin’s value has surged as much as $67,000 this year, the Central Bank questioned whether the digital currency, Bitcoin, had any intrinsic value, cautioning investors about the possible risks.
Indeed, the Bank of England’s deputy governor Sir Jon Cunliffe had warned that the fast expansion of cryptocurrencies might pose a severe threat to the country’s established financial system in an interview with the BBC earlier this week.
Cunliffe emphasized that the majority of risk comes from the volatility of digital assets, and if the value of the assets falls precipitously, the institution will be responsible for mitigating the impacts. Thus, Cunliffe suggests standardizing rules for the industry to reduce risk.
“Their price can vary quite considerably and they could theoretically or practically drop to zero. The point, I think, at which one worries is when it becomes integrated into the financial system when a big price correction could really affect other markets and affect established financial market players. It’s not there yet, but it takes time to design standards and regulations,” he said.
U.K. inflation at a 10-year high
In November, inflation in the United Kingdom reached a 10-year high as consumer prices continued to surge. The Consumer Price Index increased by 5.1% in the year to November, up from 4.2% in October, which was the highest rise in a decade and more than twice the central Bank’s prediction.
Economic forecasters surveyed by Reuters had predicted inflation would reach 4.7% in November, while the Bank of England had forecast that inflation would reach 5% in the spring of 2022 before easing to its 2% goal by late 2023.
Monetary Policy Committee members will meet Thursday, December 16, to discuss whether to tighten monetary policy, with inflation rising and the labor market remaining strong, but the fast spread of Omicron Covid-19 has placed further doubt on the short-term prospects for economic growth.
Ultimately, with record inflation levels in both the United States and the U.K., the current economic situation has prompted investors to consider Bitcoin and other assets as a means of protecting themselves against inflation.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
