Capital Gain

Bitcoin Swoon Highlights Caution On Volatility

Published: in FINTECH by .

If 2021 is cryptocurrencies’ headline year — after a 2020, where, of course, names like bitcoin shattered previous highs — the news may be less than stellar.

At this writing, we’ve got more evidence of the topsy-turvy nature of crypto, marked by the type of volatility that gives one whiplash, especially for those who hold bitcoin.

Double-digit price declines have sent the marquee crypto to levels not seen in weeks. Bitcoin recently changed hands at $32,580, down from record highs set earlier in the year of more than $41,000.

It is the anticipated mainstream adoption (hoped for by crypto enthusiasts), we note, that could face significant headwinds. Consider the fact that, as reported in this space, Janet Yellen, President Joe Biden’s nominee for Treasury Secretary, has flagged cryptos as an area of “particular concern” that is used “mainly for illicit financing.”

“The technologies to accomplish this change over time, and we need to make sure that our methods for dealing with these matters, with tech terrorist financing, change along with changing technology — cryptocurrencies are a particular concern,” Yellen said before the Senate Finance Committee.

Compensation For Crypto Victims? 

In Europe, there is at least some groundswell of movement to offset the financial impact of crypto-related crimes. Coindesk reported that a petition has been sent to the European Parliament to implement a “regulatory scheme to compensate victims.” Under the mechanics of that fund, as proposed by attorney Jonathan Levy, the European Union would charge a .0001 cent per euro fee on cryptocurrency transactions. The fees would be collected into a fund that would then compensate victims of various crypto-related crimes.

At a high level, there are some indications that the EU would be less than receptive to bitcoin and its brethren to be used in everyday commerce, due in part to the aforementioned price volatility and vulnerability to fraud.

Yellen’s comments echo observations made earlier this month by European Central Bank (ECB) President Christine Lagarde, who stated that cryptos, as a whole, are a “highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity.” She went on to say that “there has to be regulation. This has to be applied and agreed upon … at a global level because if there is an escape that escape will be used.”

Lagarde had already stated, at the end of last year, that the European Central Bank will be able to launch a digital version of the euro within four years. In a speech, Lagarde said, “If the technology is cheaper, faster, more secure for the users then we should explore it and if it is going to contribute to better monetary sovereignty, a better autonomy for the euro area, I think we should explore it.”

In the meantime, on Wednesday (Jan. 20), the European Commission and the ECB released a joint statement saying they’re considering beginning work on a digital euro. The work would be tied to “pursuing their efforts towards ensuring a strong and vibrant European digital finance sector and a well-integrated payments sector to respond to new payment needs in Europe.”

The urgency may be there for a digital fiat, for such focused central bank efforts, against a macro backdrop that shows continued need for large stimulus payments to individuals and firms. Lagarde said Thursday that the continuing pandemic poses “serious risk to the eurozone and global economies” and that “ample monetary stimulus remains essential.”

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About: The January 2021, Retail Banking Services’ Paradigm Shift Report, PYMNTS examines how consumers choose to engage with their FIs when accessing information about various products and services, especially since the pandemic’s onset.

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