The European Union has warned that it will regulate cryptocurrencies if the risks exposed by the meteoric rise of bitcoin and its ilk are not addressed.
The boom and bust of cryptocurrencies have seen some investors make millions where others have suffered heavy losses. Bitcoin, which now trades at about $9,000 (£8,000) a token but recently dropped to less than $6,000, leads the pack, rising nearly 2,000% to just under $20,000 in 2017, fuelling a global investment craze.
“This is a global phenomenon and it’s important there is an international follow-up at the global level,” Valdis Dombrovskis, the EU’s financial chief, said on Monday. “We do not exclude the possibility to move ahead (by regulating cryptocurrencies) at the EU level if we see, for example, risks emerging but no clear international response emerging.”
Dombrovskis was speaking after hosting a roundtable meeting attended by the European Central Bank, industry bodies and the Financial Stability Board, which writes and coordinates regulation for the Group of 20 Economies.
G20 finance ministers and central bankers meet in Buenos Aires in March, with cryptocurrencies set to be on the agenda. The EU would decide how to address the issue later this year or early in 2019, the financial services commissioner said.
Regulation of cryptocurrencies could seek to bring them in line with financial legislation designed to combat money laundering and counter-terrorism, forcing traders to disclose their identities and look to make it more difficult to use bitcoin, Ethereum or others for illegal activities.
A member of the ECB’s executive board, Yves Mersch, recently called for a global clampdown on cryptocurrencies, saying the central bank was aligned with the views voiced by Agustín Carstens, the head of the Bank for International Settlements, who condemned bitcoin as “a combination of a bubble, a Ponzi scheme, and an environmental disaster”.
Germany and France said this month that new opportunities arise from cryptocurrencies, but they could pose substantial risks for investors and be vulnerable to financial crime without safeguards. So far, however, there appears to be no strong consensus among G20 countries to regulate them closely.
Policymakers worry about losing jobs and growth to other regions if they crack down hard on innovation in the sector, especially stemming from the blockchain technology that underpins cryptocurrencies, which Dombrovskis said held strong promise.
Markus Ferber, a center-right member of the European Parliament, said a quick EU regulatory response was needed, rather than waiting years for international rules to trickle through.
“In order to make sure that retail investors do not fall prey to market manipulation and fraud, virtual currencies should be regulated as other financial instruments,” Ferber said in a statement.