Cryptocurrencies Can Cause the Next Flobal Financial Crisis
December 22, 2017
Cryptocurrencies can cause the next global financial crisis if they become a systemic important element of the world financial system, says Garrick Hileman, a cryptocurrency expert and an economic historian at the University of Cambridge. According to his view, the universal cryptocurrency commitments can pose a systemic risk in general.
"Today, there are not enough people who own cryptocurrencies, moreover only a small number of financial institutions are holding them at the moment. To add to it, there is a low amount of credits and leverage in this space. However, I can imagine scenarios, although I am not predicting this, where they will become systemically important", Hileman believes.
The phenomenal and frequent increase of Bitcoin's value has not gone unnoticed by the financial authorities of the countries around world. What is more, many of them believe that right now it is time for cryptocurrency regulating, and this issue will be discussed at the upcoming G20 meeting.
Hileman is quite sure if the cryptocurrency bubble breaks down, the traditional banks will suffer even more great losses than they suffered in 2008, when the last global financial crisis began, and in the light of which Satoshi Nakamoto published White Paper of Bitcoin.
According to Hileman, the increasing volume of cryptocurrency acceptance in the global financial system, as well as the growing number of hedge funds starting to use it, and Bitcoin futures emerge could also lead to a new global financial crisis.
However, most of Hileman’s colleagues do not agree with his statement. Following the recent survey, 75% of European economists do not consider Bitcoin a threat to the world financial system just because of the deficient volume, although 61% of this group believe that it is necessary to increase the regulation degree of the cryptocurrency space.
Additionally, the cryptocurrency integration with more traditional financial markets is already taking place, said Hileman, and things are moving quite rapidly. Because of their instability, they can bring about a new crisis.
"Now it is possible to exit the traditional banking system relatively easily into something that is disconnected, and that could exacerbate a crisis", Hileman believes.
Following his statement, the key problem of cryptocurrencies is the lack of the reliable information on their real value. The existence of swindling “pump and dump” scams, due to which prices can be artificially increased is a rather serious problem, which is intensified by not yet developed valuation models.
"People are afraid of missing out, but it is not known who can be trusted. This issue requires close attention, otherwise “a lot of people are going to get hurt”, Hileman said.