The United States Federal reserve seems to think that Bitcoin could pose a risk to financial stability as more people attempt to invest in it.
They have stated that they may get involved in crafting some measured to “protect investors”. Yet, they also claimed that at the current levels of use, they did not pose a significant threat.
The statement was made the vice chairman of supervision at the Fed, Randy Quarles who stated that:
More serious financial stability issues may result if they achieve wide-scale usage. (Digital currencies are a) niche product that sometimes garners large headlines. (It) has no intrinsic value, is not the liability of a regulated banking institution, and in leading cases, is not the liability of any institution.
Given that the person who was making these claims was from the Federal Reserve, one is able to take it with a pinch of salt. He made the comments in the context of the limited liquidity and the volatile exchange rate with the US dollar.
Moreover, the comment also has a slight contempt for the digital currency. It seems as if Quarles is flummoxed as to why people would be willing to invest in a currency that was not backed by some central authority.
What he fails to see though, is that the major appeal of Bitcoin is because of this trait and not in spite of it. People are increasingly aware that the promises of the central banks are not as honest as defined technological protocols.
Although Bitcoin is not as widely accepted as a medium of exchange as the US dollar, there is an increasing trend of Bitcoin being used to pay for goods and services.
For example, there have been a number of properties that have been listed in Bitcoin as well as university courses that accept the crytpocurrency.
Although criticism from the centralised banking authority do limit the effectiveness of the message, there are legitimate concerns in the number of people who are investing in Bitcoin purely for speculation.
They are hoping that they will be able to double or triple their money because there will always be someone willing to buy from them.
This is a misguided investment approach as the investors are merely focused on flipping the coin at a profit later. Although this may happen, it is naturally a volatile currency and returns are hard to ascertain.
Those, however, who invest in Bitcoin because they are aware of the technological advantages and the benefits for privacy and diversification will still invest, despite what the price does and what the Federal reserve says.
Featured Image via Fotolia