Bitcoin comes under scrutiny from regulators after skyrocketing growth

The British financial watchdog and the president of the ECB are calling for stricter rules.

Regulators are paying more attention to bitcoin and its use in the international financial system after the value of the digital currency surged in a volatile rally that increased fears of a lack of robust oversight by financial supervisors.

Both the UK’s Financial Conduct Authority and the president of the European Central Bank stressed this week the need for stricter regulatory oversight of cryptocurrencies, noting the extreme volatility and criminal activity often associated with the cryptocurrency market.

ECB President Christine Lagarde told the conference on Wednesday that bitcoin was „a very speculative asset that allowed dirty dealings and totally unacceptable money laundering activities“.

Ms Lagarde’s comments follow a grimly worded warning from the UK regulator, which this week reiterated to consumers that anyone involved in bitcoin schemes „should be prepared to lose all their money“.

The price of bitcoin soared more than 300% last year and rose another 40% in early January, reaching a high of more than $40,000. Since then it has fallen 17% without a clear trigger.

Bitcoin’s rise chart december 2020

This degree of volatility discourages many institutional investors, but it is Bitcoin Fortune hard for some hedge funds and other private investors to ignore.

However, Ms Lagarde warned that „criminal investigations have demonstrated very clearly that bitcoin has been used to launder money“ and called for cryptocurrency regulation to be agreed at a global level, perhaps in the G7 or G20 wealth groups.

„If there is a loophole, that loophole will always be exploited by criminals – this shows that global coordination and multilateral action is needed,“ she expressed, adding that the FATF is increasingly focusing on cryptocurrencies.

German police this week shut down an online marketplace that was selling huge amounts of illegal drugs in exchange for cryptocurrency. Europol said the site, called DarkMarket, operated on a hidden part of the internet known as the darknet and was used by 2,400 suppliers to sell more than 140 million euros worth of drugs using cryptocurrencies, including bitcoins and monero. Europol said the site was the world’s largest illegal darknet marketplace, adding that German police arrested a 34-year-old Australian, who is the alleged operator of the site, and seized more than 20 computer servers in the territories of Moldova and Ukraine.

In the UK, the FCA said it was concerned about unauthorised investment schemes offering super profits in the cryptocurrency market and the high level of price volatility in this market, while consumers cannot count on UK regulators to protect them from losses associated with cryptocurrency investments.

A source close to the FCA said the authority was primarily concerned about the way it advertises. „It has nothing to do with the actual movement of bitcoin prices. But we understand that price hikes in crypto-assets such as bitcoin could increase consumer interest in these assets and related investments,“ the source expressed concern.