El Salvador adopted bitcoin as legal tender and the Bank of England said looking at the possibility of launching its own digital currency, but the long-term adoption of cryptocurrency by customers and business continues to be a risky business only recommended for people with money to lose, UK financial experts told Sputnik on Wednesday.
“At a time when central banks are looking at much tougher rules around crypto, and potentially setting up their own digital coins to bring crypto assets into the regulated banking sector, far from becoming more mainstream bitcoin could become even more marginalised, as a hacker favourite on the dark fringes of finance,” Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said.
To illustrate her point, Streeter mentioned the seizure by the FBI of $2.3 million in bitcoin that the US fuel company Colonial Pipeline had paid to a criminal outfit during a ransomware attack.
“The publicity surrounding the ransom and the seizure has shone a light on the fact that one of bitcoin’s primary use cases is as a criminal underworld currency,” she stressed, adding that the case also put a question mark on one of the cryptocurrency’s most lauded quality: it’s decentralized nature, away from the scope of government interference.
Asked about the Bank of England’s intentions to look more closely at launching its own digital currency, Streeter said this “new breed of sterling” could improve the efficiency and cost of retail sales and large value transactions, create new monetary policy controls if needs be and allow people have access to money if cash became scarce in the future.
She warned, however, against the risk that the introduction of the central bank digital currency might damage the effectiveness of existing monetary policy.
“If digital money doesn’t pay interest, and isn’t tied to bank lending, changing the base rate is going to have far less impact on spending,” Streeter said.
Laith Khalaf, a digital analyst at AJ Bell, believed that the Bank of England has to do a lot of groundwork before it decides to issue or back a switch to digital currency, mostly because it needs to ensure that doing so does not compromise financial stability.
“A central bank digital currency is far from a done deal in the UK, but clearly the Bank of England is considering whether there might be some benefits to going down this path,” he told Sputnik.
As well as Streeter, who said that the Bank of England is in no rush to “go crypto,” Khalaf said that the bank’s modeled scenario where 20 percent of retail deposits switch to a new form of digital currency is purely a hypothetical situation used to flesh out some of the issues that may arise with widespread adoption of digital currencies.
For both analysts, given the volatility of bitcoin and the high risk that investing in crypto assets entails, traders should be aware that their investment could ultimately fall to zero.