Regulators are sharpening their focus on bitcoin and its use in the international financial system after the value of digital currency raced higher in a volatile rally that fueled concerns about a lack of strong control by financial watchers.
Both the UK Financial Conduct Authority and the president of the European Central Bank highlighted the need for stricter regulatory scrutiny for cryptocurrencies this week, noting the high volatility and criminal activity that often accompanies -connected to the market.
ECB president Christine Lagarde said at a conference on Wednesday that bitcoin was “a highly speculative asset, which has made a funny deal and some interesting and utterly repetitive money laundering activity”.
Ms Lagarde’s comments follow a verbal warning from the UK regulator, which again told consumers this week that anyone who was doubling in bitcoin schemes should be willing to take their money to lose all ”.
The price of bitcoin rose more than 300 percent last year and gained another 40 percent in early January to reach a high of more than $ 40,000. Since then, it has fallen 17 percent without a clear move.
This level of volatility is unsustainable for many institutional investors, but difficult to avoid for some hedge funds and other private investors.
But Ms Lagarde warned that “criminal investigations” had shown “very clear” that bitcoin had been used in laundering money, and called for “rules” of the cryptocurrency to be agreed “at a global level” , perhaps at the G7 or G20 groups of rich countries.
“If there is an escape, that escape will be used – if there is anything it shows the need for global coordination, multi-faceted action,” she said, adding that ‘Financial Action Task Force on Money Laundering is increasingly focusing on cryptocurrencies.
German police this week closed an online market that sold a lot of illegal drugs in exchange for cryptocurrency.
Europol said the site called DarkMarket was working on the hidden part of the internet known as the dark web and was used by 2,400 retailers to sell drugs worth more than € 140m using cryptocurrencies including bitcoin and monero. The site was the world’s largest illegal market on the dark web, Europol said, adding that German police had arrested a 34-year-old Australian who claimed to be work on the site over the weekend and captured more than 20 computer servers in Moldova and Ukraine.
In the UK, the FCA said it had concerns about unauthorized investment schemes offering profitable returns linked to cryptocurrencies as well as the high level of price volatility. Consumers don’t have access to UK regulators for a cryptocurrency bet that is turning sour.
One person familiar with FCA thinking said he was particularly concerned about advertising practices.
“This is not behind bitcoin price movements. . . but we are aware that spikes in the price of crypto assets such as bitcoin can increase consumer interest in crypto assets and related investments, ”the individual said.