Bitcoin Threatens Financial Stability say Regulators

bitcoinUS regulators have warned that Bitcoin, along with other “cryptocurrencies,” poses “financial security risks.” Bitcoin and other, similar currencies are digital alternatives to traditional currency, which are decentralised, not connected to any specific nation or geographic area, and not overseen by any governing institutions.

The increasing popularity of these cryptocurrencies, of which Bitcoin is the most popular and widespread, could pose risks to national financial stability, the US regulators wrote in a recent report. The report, which provides an annual analysis of the most significant threats facing the financial system of the US, also stated that regulators would begin monitoring cryptocurrencies and the situation surrounding them more closely.

The report was produced by the Financial Stability Oversight Council (FSOC), which is made up of various US financial regulators and analysts. The FSOC includes representatives of the US Federal Reserve, the US Treasury, and the Securities and Exchange Commission.

Bitcoin and, to a somewhat lesser extent, other digital currencies have been steadily growing in popularity over the past several years. Some people choose to use them over traditional currencies as they prefer the lack of connection to centralised banks and major financial institutions, as well as the convenience of not having to deal with exchange rates when making international payments. Others find that transactions using virtual currency are more transparent and efficient.

The fact that digital currencies can, in some circumstances, make transactions more confidential and assets easier to launder has also endeared it to some criminal groups, and therefore provoked a degree of controversy. Cryptocurrencies are not, however, inherently criminal in themselves. The use of digital currencies by criminals, however, has provoked concerns among the legitimate users of these currencies. Some users fear that concerns about their usefulness to criminals and terrorists may lead national governments to take action against Bitcoin.

The FSOC said that there had been a “dramatic” rise in transaction failures and delays when using Bitcoin over recent months. This, they said is the result of new transactions being completed faster than records can be updated.

However, while the FSOC highlighted the potential risks of Bitcoin to national financial stability and expressed an intention to keep a closer eye on the situation, it did not believe that these risks would necessarily come to fruition. The report also said that, if the importance of cryptocurrencies continues to rise and the importance of traditional, centralised currency institutions diminishes as a result, it will be necessary for regulators to be ready to “adapt to the changing market structure.