Caution is warranted for investors after Israel’s central bank announced it will not consider cryptocurrencies as actual currencies because of difficulty in regulation and monitoring the risk, according to Reuters.
While this is just one central bank’s decision, more central banks could follow suit and that might spell trouble for investors interested in the cryptocurrencies market. Also vulnerable to government opposition of cryptocurrencies would be companies whose business models are tied to Bitcoin or its alternatives such as Ethereum or Ripple.
Bank customers have complained that some financial institutions in Israel have been creating obstacles to customers using funds from their own accounts to purchase cryptocurrencies. Nadine Baudot-Trajtenberg, the deputy governor of Israel’s central bank, responded to these concerns and said that the bank is aware of the complaints, but that “this was something the central bank would not be able to address.”
Baudot-Trajtenberg added that the Bank of Israel has been studying the potential impact and use of cryptocurrencies, but that no central bank has issued any significant guidelines and that there is not enough information to assess the full impact and potential dangers of virtual currencies. Some concerns of central banks revolve around protecting banking customers from risks associated with cryptocurrencies.
“The anonymous nature of virtual currencies leads to the possibility that they may be used to launder money, finance crime, and so forth,” Baudot-Trajtenberg said.
However, central banks and government regulators might have other concerns as well. If decentralized cryptocurrencies establish themselves as legitimate currencies, that would de facto obliterate the current monopoly that central banks hold over creation and manipulation of national currencies. Additionally, a move to a cryptocurrency-based global economy would greatly diminish the power than government officials currently hold over national economies and financial markets.
Investors should note that refusal to accept cryptocurrencies as legitimate currencies could have wider implications than just on the cryptocurrency exchanges. For instance, Israel’s markets regulator put forward a proposal that would ban from the Tel Aviv Stock Exchange any company whose business model is based on a cryptocurrency.