On November 16, 2017, while speaking at a conference in Florence, Italy, Ewald Nowotny, governor of the Austrian Central Bank and a member of the European Central Bank’s Governing Council, disclosed that central bankers and legislators are contemplating cryptocurrency regulation. “We’re asking ourselves if legislators or central banks should intervene, as happened in China where they banned (the use of cryptocurrencies) because they consider them fraudulent,” said Nowotny.
In the last two months, Chinese authorities first forbade token offerings (ICOs) and then decimated cryptocurrency trading on the country’s major exchanges. With the closure of Chinese cryptocurrency exchanges, over-the-counter trading has arisen as a popular alternative.
With the total cryptocurrency market cap nearing $230 billion, financial leaders are taking private digital money more seriously. In July 2017, Nowotny dismissed bitcoin, saying that it was not a currency and compared its ascent to Tulip Mania. “Bitcoin lacks the one thing that makes a good currency, namely stability,” he alleged. But last month, Nowotny shared that the ECB had begun discussing possible legal restrictions on cryptocurrencies.
Over the last four months, bitcoin has rapidly risen in value. In July 2017, one bitcoin was valued at approximately $2,000. Today, markets dictate that one bitcoin is worth nearly $8,000. And, it’s hard to guess just how high bitcoin will go. Simply put, bitcoin defies all market fundamentals.
Still, Nowotny claimed, “This market is not so large, so it cannot create financial instability.” Instead, he worried whether buyers understand what they’re purchasing. The absence of governmental control and oversight make consumer education and protection tricky propositions.
Ultimately, “It is like buying shares on the bourse [stock market],” said Nowotny. “People investing in this product can suffer losses and if that happens, they simply have to accept it.”