BoE Governor Cautions Banks About Crypto, Says It Could Be A Financial Stability Risk

Banks and other financial institutions should be careful while holding cryptocurrencies due to their highly volatile nature, Bank of England Governor Andrew Bailey has said. He advised banks to be "especially cautious" until actual regulations are in place.

Speaking at a news conference, Bailey said the future rules on cryptoassets "would balance risk management with the need to support innovation and competition," Reuters reported.

"The (BoE's Financial Policy Committee) considers that financial institutions should take an especially cautious and prudent approach to any adoption of these assets until such a regime is in place," Bailey said after a meeting of the Financial Policy Committee.

Though British banks have no clear guidelines about investing or holding cryptocurrencies, the FPC said several banks are now offering cryptoasset derivatives trading or custody services.

"It probably isn't a financial stability risk today but it has all the makings of something that could become one," Bailey said.

The BoE Governor insists that there is a need to look beyond banks and ponder upon the wider financial impact of cryptoassets.

"Enhanced regulatory and law enforcement frameworks, both domestically and at a global level, are needed to influence developments in these fast-growing markets.".

In May, Bailey said that cryptocurrencies have "no intrinsic value."

"I’m going to say this very bluntly again,” he said. “Buy them only if you’re prepared to lose all your money."

Bailey remains critical of cryptocurrencies and believes that regulators need to step in as soon as possible.

However, many investors have stepped up to buy Bitcoin as a hedge against inflation, including legendary trader and one of Wall Street's most successful hedge fund managers, Paul Tudor Jones who bet 1% to 2% of his assets on Bitcoin, as reported by CNBC in May 2020.