The Bank of England has issued a warning that Bitcoin could become worthless. It has also said that crypto investors should be ready to lose everything they put into the space.
Thomas Belsham from the media engagement and stakeholder division of the Bank of England published a blog that suggested that Bitcoin doesn’t meet the standard of a currency. The staff member also pointed out that it is highly volatile.
According to Belsham, the exchange might only create 21 million Bitcoin. This move intentionally creates a scarcity that makes investors refer to it as digital gold. However, Belsham states that this scarcity might make digital currency useless.
Thomas Belsham believes sustaining the system is difficult
Miners add Bitcoin coins by authenticating modifications in their blockchain record. The number is currently 19 million. Even though miners are unlikely to achieve the final number of Bitcoins in circulation before February 2140, Belsham believes maintaining the system will be more challenging with time.
The value of Bitcoin has increased by $67,000 this year. Despite this, the Bank of England does not believe digital currency has intrinsic value. The central bank has even cautioned investors of the risks.
Sir Jon Cunliffe, the deputy governor of the Bank of England, has warned that crypto’s accelerating expansion threatens the country’s financial system. He points out that the volatility of the digital currency is an issue.
Moreover, if the value were to drop suddenly, institutions would have to dampen the impact. For this reason, Cunliffe suggests introducing regulations that would lower the risks.
Inflation has caused investors to turn to Bitcoin
Furthermore, inflation in the U.K has reached the highest in ten years. The Consumer Price Index, 4.2% in October, rose to 5.1% in November. This figure is double what the central bank foretold.
The country’s inflation rate has made investors consider crypto and other assets to protect themselves from inflation.
The Bank of England had predicted that inflation would be 5% in the spring of 2022. It later lowered it to 2% by the end of 2023. Other Economic Forecasters had expected that the inflation rate would be 4.7% in November.
The Monetary Policy Committee will decide if they should tighten money policies as the labor market stays strong and inflation increases.