Bank of England Governor Andrew Bailey.
Simon Dawson | Bloomberg via Getty Images
LONDON – Cryptocurrencies “have no intrinsic value” and people who invest in them should be prepared to lose all of their money, said Andrew Bailey, governor of the Bank of England.
Digital currencies like Bitcoin, Ether, and even Dogecoin have cracked this year, reminding some investors of the 2017 crypto bubble that saw Bitcoin blasted towards $ 20,000 only to drop to $ 3,122 a year later.
Asked at a press conference on Thursday about the rising value of cryptocurrencies, Bailey said, “They have no intrinsic value. That doesn’t mean people don’t value them because they can have external value. But they don’t have any.” intrinsic value. “
“I’ll be frank about this one more time,” he added. “Only buy them when you are ready to lose all your money.”
Bailey’s comments echoed a similar warning from the UK Financial Conduct Authority.
“Investing in cryptoassets or related investments and loans generally involves very high risk with investors’ money,” the financial services watchdog said in January.
“When consumers invest in these types of products, they should be ready to lose all of their money.”
Bailey, who was formerly the chief executive of the FCA, has long been a skeptic of crypto. In 2017, he warned, “If you want to invest in Bitcoin, be prepared to lose all of your money.”
Bitcoin is up over 90% this year, thanks in part to rising interest from institutional investors and corporate buyers like Tesla. The electric car company bought $ 1.5 billion worth of Bitcoin earlier this year, and the value of its holdings has since grown to nearly $ 2.5 billion.
Proponents of Bitcoin view it as a store of value similar to gold because of its scarce supply – only 21 million bitcoins can ever be minted – and argue that the cryptocurrency can serve as a hedge against inflation as central banks around the world print money around that Alleviate coronavirus-batteryed economies.
However, skeptics see Bitcoin as a market bubble waiting to burst. Michael Hartnett, chief investment strategist at Bank of America Securities, said the Bitcoin rally looked like the “mother of all bubbles” while Stephen Isaacs of Alvine Capital said there was “no fundamentals for this product, period”.
Alternative digital currencies have made even bigger gains than Bitcoin. Ether, the native token of the Ethereum blockchain, has posted a return of more than 360% since the start of the year, while the meme-inspired crypto Dogecoin gained a whopping 12,500%.
Analysts have attributed the rise of dogecoin to tweets from celebrities like Elon Musk and Tesla’s Mark Cuban, as well as retail investors who bought the token through the free-trading app Robinhood. David Kimberley, an analyst at UK investment app Freetrade, described the Dogecoin rally as “a classic example of a greater fool’s theory” referring to the practice of selling overvalued assets to investors willing to pay a higher price .
At the same time, central banks are considering issuing their own digital currencies. Last month the Bank of England set up a joint task force with the Treasury Department to examine the Central Bank’s digital currencies (CBDCs). Such a currency would coexist rather than replace cash and bank deposits, the bank said.