Tales from the Crypto - too volatile to handle?

After we have seen a succession of record highs for Bitcoin in 2021, more than doubling in value since the start of the year, May saw the first significant falls for some time. 

The reason? 

A joint statement, released on the People's Bank of China WeChat account with internet and financial services industry associations, which stated amongst other things that cryptocurrencies should not be accepted as a form of payment by financial institutions. It also warned that cryptocurrencies and virtual currencies in general are not real currencies, and should not be used as a proxy for fiat currency.

We are beginning to see that the huge increase in value of Bitcoin over the past six months - which has attracted institutional and retail investors - is leading to an increased concern by global regulators of the exposure to Bitcoin and other cryptocurrencies, and the impact price volatility could have in financial stability.

For example, we have seen warnings from the ECB throughout 2021 of the speculative and volatile nature of Bitcoin and other cryptocurrencies, and that confidence in cryptocurrencies could disappear quickly, resulting in disruption to financial markets. 

We know that the ECB and other regulators around Europe will keep under review the risks posed by exposure to cryptocurrencies, and that developments related to cryptocurrencies will remain on regulators' work programmes for the foreseeable future. 

Keeping cryptocurrencies on the regulatory agenda are also the concerns regarding the environmental impact of cryptocurrencies from the significant carbon footprint required to mine new digital assets and the potential for cryptocurrencies to be used to further global financial crime. 

So just like the value of Bitcoin and other cryptocurrencies, there may be regulatory bumps in the road further into 2021 and beyond.