The Governor of the Bank of England is right on cryptocurrencies

The Bank of England Governor Mark Carney delivered a speech titled “The Future of Money” at the University of Edinburgh on March 2, 2018. Goes without saying Cryptocurrencies came up.

You can read the entire speech here but here are some interesting excerpts,

“In The Wealth of Nations, Adam Smith defines money by the roles it plays in society, in particular, how well it serves as:

– A store of value with which to transfer purchasing power from today to some future time;
– A medium of exchange with which to make payments for goods and services; and
– A unit of account with which to measure the value of a particular good, service, saving or loan. ”

“In the depths of the global financial crisis, the coincidence of technological developments and collapsing confidence in some banking systems sparked the cryptocurrency revolution.

Its advocates claim that a decentralised cryptocurrency, such as Bitcoin, is more trustworthy than centralised fiat money because: – Its supply is fixed and therefore immune from the age-old temptations of debasement;

– Its use is free from risky private banks; and
– Those who hold it can remain anonymous and therefore free from the ravenous eyes of tax authorities or worse still law enforcement.
Some also argue that cryptocurrencies could be more efficient than centralised fiat money because the underlying distributed ledger technology cuts out intermediaries like central banks and financial institutions and allows payments to be made directly between payer and payee.”

The long, charitable answer is that cryptocurrencies act as money, at best, only for some people and to a limited extent, and even then only in parallel with the traditional currencies of the users.

The short answer is they are failing.

Poor Stores of Value

Cryptocurrencies are proving poor short-term stores of value. Over the past five years, the daily standard deviation of Bitcoin was ten times that of sterling. Consider that if you had taken out a £1,000 student loan in Bitcoin in last December to pay your sterling living costs for next year, you’d be short about £500 right now. If you’d done the same last September, you’d be ahead by £2,000. That’s quite a lottery.

And Bitcoin is one of the more stable cryptocurrencies. Indeed, the average volatility of the top ten cryptocurrencies by market capitalisation was more than 25 times that of the US equities market in 2017.

This extreme volatility reflects in part that cryptocurrencies have neither intrinsic value nor any external backing. Their worth rests on beliefs regarding their future supply and demand—ultimately whether they will be successful as money.

Thus far, however, rather than such a sober assessment of future prospects, the prices of many cryptocurrencies have exhibited the classic hallmarks of bubbles including new paradigm justifications, broadening retail enthusiasm and extrapolative price expectations reliant in part on finding the greater fool.”

Inefficient Media of Exchange

The most fundamental reason to be sceptical about the longer term value of cryptocurrencies is that it is not clear the extent to which they will ever become effective media of exchange.

Currently, no major high street or online retailer accepts Bitcoin as payment in the UK, and only a handful of the top 500 US online retailers do. ”

Virtually non-existent Units of Account

Given that they are poor stores of value and inefficient and unreliable media of exchange, it is not surprising that there is little evidence of cryptocurrencies being used as units of account.

Retailers that quote in Bitcoin usually update at very high frequency so as to maintain stable prices in traditional currencies such as US dollars or sterling. The Bank is not aware of any business that accepts Bitcoins in payments that also maintains its accounts in Bitcoin.”

To isolate, regulate or integrate?

Authorities need to decide whether to isolate, regulate or integrate crypto-assets and their associated activities.

A few jurisdictions have banned crypto-assets outright. And some regulators have sealed off crypto-assets from the core of the financial system in order to curtail risk of contagion. Most prominently, China—which had been one of the most active crypto-asset markets—recently banned exchanges, financial institutions and payment processors from handling them.

If widely adopted, however, isolation risks foregoing potentially major opportunities from the development of the underlying payments technologies.

A better path would be to regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system.

The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system. Being part of the financial system brings enormous privileges, but with them great responsibilities.


We agree with Mark Carney. For too long cryptocurrencies have become a scheme to sell on to the greater fool. And largely regulators have overlooked it.

There are 118 elements in the periodic table. There are over 13,000 (over 1,600 tracked by cryptocurrencies and growing by around 10 a day. So, cryptocurrencies aren’t rare, are they?

From the periodic table, 31 elements can be mined in the real world. In the cryptocurrency world, mine what you like. So, cryptocurrencies aren’t really the new gold or silver either.

Cryptocurrencies don’t contribute to economic data such as GDP (via mining activity) or global money supply (as a currency), if they did it would look like this.

The number of cryptocurrencies being created every day is crazy. And it is largely a pump and dump scheme selling these on to the greater fool. Time to stop this now.

You can find the complete code to create your own cryptocurrency in under an hour on Github. We won’t share a link because we don’t want to promote it.

We will just end with a quote from Hyman Minsky, “Everyone can create money; the problem is to get it accepted.”

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.