A ghost is haunting central banks: Bitcoin. The major cryptocurrency is starting to make central bankers lose sleep, with two main concerns. First, that the financial bubble that developed on Bitcoin could, like all bubbles, explode with consequences of loss of wealth (real or perceived, it doesn't matter) and bankruptcies in the parts of the economy where Bitcoin is innervated. Second, that the growing diffusion of cryptocurrencies could undermine the traditional payment system, making banks and non-bank intermediaries difficult to operate and even alter the transmission mechanisms of monetary policy.
On the first aspect, a few numbers are enough to confirm that we are almost certainly in a bubble. Let's calculate the return on an investment in Bitcoin. Well, the return compared to December 31 of the previous year was 189,1% in 2012, 5.428,7% in 2013, -56,1% in 2014, 34,2% in 2015, 124,3, 2016% in 1.033,1 and 2017% accrued so far in 2014. Therefore, barring the very strong fall in 1, the returns are stratospheric and 31 dollar invested in Bitcoin as of December 2011, 2391 would be worth 2013 dollars today. Moreover, 2017 and 65,8 are the years that show the most relentless progression of the value of the cryptocurrency. In the most recent months, the quotation grew by 2017% in August 8,6, dropped by -48,7% in September, and then rose by 70,2 and XNUMX% respectively in October and November. It is interesting to ask what caused the temporary fall of Bitcoin last September. Well, the trend seems entirely attributable to the fact that the Chinese authorities have announced a ban on platforms that allow people to buy or sell cryptocurrencies in China.
But what are cryptocurrencies? The EBA (European Banking Authority) has defined them as digital representations of value which are not issued by a central bank or public authority nor are they necessarily linked to a legal tender currency, but which are used by a natural or legal person as a means of exchange and which can be transferred, stored and traded electronically.
Bitcoin, a cryptocurrency theorized by Satoshi Nakamoto, can be purchased on an exchange platform with traditional currency and then transferred to a personalized Bitcoin account known as an 'electronic wallet'. Using this wallet, consumers can send Bitcoins online to anyone else who wants to accept them, as well as convert them back into traditional fiat currency (e.g. euro, pound or dollar).
If, on the one hand, the potential benefits are greater speed and convenience of transactions, financial inclusion and contribution to economic growth, on the other hand, the risks for users and market participants are high and, according to the Bank of 'Italy, deriving, among other things, from: 1) lack of information, due to the failure to provide information obligations and transparency safeguards; 2) absence of legal and contractual protections; 3) absence of forms of control and supervision, given that the issue and management of virtual currencies, including the conversion into traditional currency, are activities not subject to supervision by the Bank of Italy or by any other authority in Italy ; 4) risks of permanent loss of the currency due to malfunctions, cyber attacks, loss; 5) high volatility of value due to price formation mechanisms (sometimes opaque) and the absence of a central authority capable of intervening to stabilize value; 6) risk of use for criminal and illicit purposes, although virtual currency transactions are visible, in fact, the holders of electronic wallets and, more generally, the parties involved can generally remain anonymous. The EBA, believing that an adequate regulatory approach to address these risks would require a substantial regulatory framework, advised national supervisors to dissuade credit, payment and e-money institutions from purchasing, holding or sell virtual currency.
The attitude of various countries towards Bitcoin differs. For example, while China wants to ban it, Japan is leaning towards allowing its use. And even among economists there are conflicting views. Among others, in a recent article, Gur Huberman (esteemed professor at Columbia University, together with Jacob Leshno and Ciamac Moallemi) recognizes the value created by Bitcoin. Instead, economists of the caliber of Kenneth Rogoff and Joseph Stiglitz, for once in agreement, believe that states must intervene. The first thinks that this must be done so that the technology survives but the pollution risks are eliminated. More radically, Stiglitz believes cryptocurrencies should be outlawed.
In short, the future of Bitcoin and other cryptocurrencies is currently unpredictable. But it is certain that the states and central banks will not be able to continue to turn a blind eye. And when the regulatory intervention arrives it is very likely that, if the market has not already thought about it beforehand, that bubble will burst spreading, as usual, losses and bankruptcies for last-minute investors.
