Regulators Warn Bitcoin can ‘Potentially Create Financial Stability Risk’

   June 22, 2016   |   Risk, Bitcoin, Cyber Crime

Bitcoin, a cyber-currency, has received some flak from the influential circles in the US amidst its growing popularity.

US regulators, which include, The Treasury Department, the Federal Reserve and the Securities and Exchange Commission,-- recently released an annual report that cautioned the global financial system, saying that digital currencies such as bitcoin posed potential financial stability risks. The regulators have put these digital currencies, including the bitcoin, under scrutiny, the report said.

According to the Financial Times, The Financial Stability Oversight Council, a powerful club of US regulators, said in its annual report, “Like the most new technologies, distributed ledger systems also pose certain risks and uncertainties which market participant and financial regulators will need to monitor.”

There are growing concerns among market participants that global central banks could take stringent regulatory action against the cyber-currency, as it is feared that cybercriminals, money launderers, and terrorist organizations could misuse digital currencies.

Over the years, the digital currency has become very popular as a substitute to currencies as it facilitates trusted transactions for governments via decentralized database with no central establishments.

However, in the wake of rising cybercrime involving insiders, including a spate of recent bank heists that has cost financial institutions billions of dollars, the concerns shown by the regulators cannot be brushed aside. Cybercriminals have become increasingly sophisticated. As a result, losses related to cybercrime have jumped to billions of dollars annually from millions suffered in yesteryears.

To put it simply, bitcoins simplify financial transactions but also pose grave risks to the financial stability. How can regulators safeguard the payment system by mitigating risks? The question will generate lot of curiosity among market participants in the coming months. 

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