The Bank of International Settlements (BIS) has shared a scathing report criticising crypto for structural flaws such as a lack of a stable nominal anchor, scalability issues, fragmentation, and unregulated intermediaries.
Bitcoin must defeat boss
BIS is an organisation that is also described as the central bank for central banks. At the head of the BIS is Agustín Carstens, and he is seen by the bitcoin world, as the final boss. The Final Boss, who must defeat bitcoin in order to prevail as a global payment network.
https://twitter.com/dergigi/status/1275800659447746562
When Carstens speaks, his organisation ensure it reaches all central banks worldwide.
Structural flaws in crypto industry
Every year, the BIS publishes a detailed report on the state of the economy. In the current 41-page edition, the financial institution stated that “structural flaws make the crypto universe unsuitable as a basis for a monetary system,” arguing that systems built around central banks are more stable and interoperable. Interoperable means that systems can work with each other.
Central banks and their own cryptocurrency
Yet the BIS wants to do something with cryptocurrency. They are interested in dissecting crypto completely, and only using a few properties (read: buzzwords) for the programming of future Central Bank Digital Currencies (CBDCs). Think of money’s programmability, tokenisation of assets and money, and making certain components work together. Different CBDCs must be interoperable with each other in this way.
The main criticism of the BIS on the crypto-ecosystem was the lack of a stable nominal anchor, which central banks use to achieve price stability. In addition, they find crypto not scalable enough, there are too many cryptocurrencies, and they are critical of intermediaries such as brokers and exchanges.
Crypto market crash is fairly manageable
Agustín Carstens told Reuters that “all these weaknesses that were noted before have almost become reality,” referring to the recent collapses of stablecoins, liquidity problems of crypto loan companies, the collapse of hedge funds, and bailouts that followed the falling bitcoin price.
“Based on what we know, it should be fairly manageable,” Carstens said of the crypto meltdown, indicating that he did not expect cryptocurrency to cause a global financial crisis. “But there are many things we don’t know.”
Soul of money in the hands of central banks
Carstens had previously expressed his opinion that “the soul of money” is trust and that blockchain payment networks would not be able to compete with the services of central banks. He expects international standards for CBDC interoperability to be rolled out within the next 24 months.
Retail #CBDCs can be designed with inclusive features to serve users that currently do not have access to digital payments #BISAnnualEconReport https://t.co/Qvmq4W2N9h pic.twitter.com/d4hr2MylFT
— Bank for International Settlements (@BIS_org) June 21, 2022
“My main message today is simple: the soul of money belongs neither to big tech nor to an anonymous blockchain. The soul of money is trust. And central banks were and remain the institutions best placed to provide trust in the digital age.”
When Carstens speaks, central banks are singing the same tune in no time. Two years ago, the European Union proposed MiCA, a set of rules for the crypto industry in Europe.
European central bank wants to regulate Bitcoin
Christine Lagarde, the president of the European central bank, thinks it is time for the next iteration of MiCA. This is surprising, as the first version of MiCA is not expected to be in force until 2024.
ECB president Lagarde yesterday in front of the EU Parliament:
"Crypto assets & DeFi have the potential to pose real risk to financial stability"
She also called for a MiCA 2.0 regulation that covers staking & lending, DeFi & assets without an identifiable issuer. pic.twitter.com/LDJQTGV425
— Patrick Hansen (@paddi_hansen) June 21, 2022
Lagarde says Bitcoin is not covered by the original MiCA but could be included in MiCA 2:
“MiCA 2 should regulate the activities of crypto assets, strike and lending, which are certainly growing. MiCA 2 should fully cover Decentralised Finance (DeFi), currently the focus on financial intermediaries. Where no intermediary exists, regulation does not apply, and that is the case for Bitcoin. So Bitcoin will not be covered by MiCA 1, but hopefully, MiCA 2 will take that into account.”
