- The deputy governor of the Bank of England has warned that Bitcoin could crash the global financial markets
- Sir Jon Cunliffe compared the cryptocurrency to the subprime mortgage market from 2007
- His statements contradict a recent report by his own bank
The deputy governor of the Bank of England has contradicted a report from his own bank by stating that Bitcoin presents a similar threat to the financial system as the subprime mortgage crisis in 2007. Sir Jon Cunliffe told the Guardian that a collapse of Bitcoin could precipitate a 2008-style crisis and called for tighter regulation, which is in stark contrast to the consensus of a report released earlier this week which stated that “direct risks to the stability of the UK financial system from cryptoassets are currently limited.” Such a contradiction is yet another indicator of how the traditional banking has no idea how to handle Bitcoin and how misleading viewpoints can still get national airing.
Bitcoin Can Crash The Markets, Says Cunliffe
Cunliffe told the Guardian that Bitcoin and the subprime mortgage asset class are currently at roughly the same valuation, which shows that “you don’t have to account for a large proportion of the financial sector to trigger financial stability problems”. He added that with cryptocurrencies becoming ever more entwined in the traditional finance market, the risks posed by “these assets (which) have no intrinsic value and are vulnerable to major price corrections” are now putting traditional markets at risk.
This argument however is flawed on several grounds. Firstly, the subprime mortgage asset class represented $1.2 trillion worth of debt that banks had repackaged and pushed round from one to the other. Bitcoin’s valuation is simply a market valuation, with the Guardian itself stating that only $40 billion of that is based on debt.
Secondly, Cunliffe bases his warnings on Bitcoin going to zero. Of course no one can say that it won’t go to zero, but it has had multiple chances too, including several huge crashes, and every time it comes back stronger.
Thirdly, no banks or financial institutions will be at risk if Bitcoin does go to zero. How many banks were making frantic phone calls to each other when it dropped to $3,750 back in March 2020? None. In fact many might have been buying. It is still a retail driven environment.
Cunliffe Statements Contradict Bank of England Report
Setting aside Cunliffe’s staggeringly inept observation, his claims are also remarkable given that they fly fully in the face of a report released by his own bank this week that played down the risk of cryptocurrencies to the stability of the UK’s financial system. The report stated that
“Cryptoasset markets continue to grow rapidly, but currently pose limited risk to UK financial stability” which is a very different sentiment to that suggested by Cunliffe.
Whatever the Bank of England truly believes, it is yet more evidence that negative voices on Bitcoin will always find a home in certain mainstream media outlets, even if they are factually incorrect and contradictory.