Bitcoin Is Not a Systemic Financial Risk, Say Top Economists

By DAVID Z. MORRIS

A new survey finds that nearly 75% of a pool of top European economists do not think cryptocurrencies such as Bitcoin are, or will become, a threat to the stability of the financial system.

The latest survey from the London-based Center for Macroeconomics didn’t ask whether the Bitcoin or cryptocurrency markets were in a bubble, though many economists and commentators believe they are. Instead, the survey asked whether they were a systemic risk, and whether they should be more tightly regulated.

73% of respondents disagreed or strongly disagreed with the idea that cryptocurrencies threaten the financial system, or could become a threat in the “next couple of years.” That rebuts surprising claims by a Deutsche Bank economist earlier this month that a Bitcoin crash was a major risk for markets in 2018.

Of the nearly fifty respondents, including researchers at universities including Oxford and University College London, most downplayed the risk simply based on the total market value of cryptocurrencies, which all together are still worth only about $600 billion, or about 20% more than Facebook.

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Some respondents also pointed out that cryptocurrency holdings aren’t currently ‘systemically interconnected,’ reducing the possibility of the sort of contagion triggered by mortgage-backed securities during the financial crisis.

But cryptocurrency is actually designed to ‘threaten the financial system,’ though in a quite different sense: by undermining the dominance of institutions like central banks. Jurgen von Hagen of Bonn University downplayed the risk of this sort of disruption, saying that “cryptocurrencies would become attractive if central bank issued currencies became very unstable. [Cryptocurrencies’] widespread use in the financial system would be a result, not a cause, of instability.”

On the survey’s second question, the economists were slightly less united – 61% agreed or strongly agreed that cryptocurrencies should be more strongly regulated, with most focusing on the need to crack down on their use in tax evasion. Cryptocurrency regulation has been slow to arrive, though some Asian countries have moved to rein them in, and the U.S. Securities and Exchange Commission has begun cracking down on so-called Initial Coin Offerings.

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