TECH TALK: BILL MAGEE says regulators are struggling to keep pace with digital currency activity
Financial regulators have admitted they are on catch-up as they bid to control cryptocurrencies. It means we shouldn’t expect much change in the highly-volatile digital coin bubble as a risky investment for the foreseeable future.
Rated in dollars and headed up by Bitcoin it has been described as the “wild west” of global financial markets.
Yet on its first decade or so of trading the digital coin has reached a market capitalisation of more than $900 billion, according to Yahoo Finance.
The S&P 500 and NASDAQ indexes each recognise a correlation between Bitcoin and stocks as an asset class, especially equities.
But the International Monetary Fund reveals regulatory authorities lack both “talent and skills” to keep pace with such fluctuating crypto cash mining.
The United Nations agency has moved digital money regulation to the top of its policy agenda.
The IMF stresses that only by implementing the “right rules” can there then exist a safe space for innovation.
From being a niche online player digital money has become more mainstream, consisting of a growing cluster of highly-speculative investments.
At the same time and despite failures of crypto issues, exchanges and associated hedge funds are creeping into the regulated financial system. However, applying regulatory frameworks or developing new ones are not without their challenges.
Patchy data means regulators are finding it tricky to keep tabs on the thousands of crypto actors. Many are not subject to typical disclosure or reporting requirements.
Further complicating matters is pseudo-scientific terminology – read jargon – used to describe the many different crypto activities, products and stakeholders.
The IMF says multiple domestic regulators covering banks, commodities, securities, payments, are in a quandary over the electronic life cycle of what is, after all, mere computer code.
Wrapped up in digital wallets digital money has been subject to hackers, accidental loss of control and access, even records of such crypto assets.
Bottom line is how to successfully integrate two financial systems with the same central bank facilities and safety nets.
Despite such well-publicised snags, DeVere Group boss Nigel Green predicts a Bitcoin bull run for the remainder of this year.
Green claims Bitcoin can act as a hedge against inflation and claims its price will experience a “substantial bounce”.
Euro Pacific Capital’s chief economist and strategist Peter Schiff disagrees. He has issued a bleak forecast for the entire cryptocurrency industry. Schiff says he would never personally buy digital currency, which he describes as a “losing game”.
For him it’s not backed up by anything other than people buying it. This undermines its value. He goes further, likening Bitcoin to a Ponzi-style digital pyramid scheme. It doesn’t generate income, it really doesn’t do anything.
It’s not an investment asset like real estate, doesn’t pay rent, it’s not a stock, bond, even a commodity and doesn’t pay dividends or interest. Shiff urges anyone contemplating buying into digital money to scrutinise their financial situation and conduct research into how it may perform in the long term.
Bitcoin fell to $18,500 for a single coin. At its peak in November 2021 it reached $65,000. Despite such volatility a trillion-dollar cryptocurrency market cap looms on the digital horizon.
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