RBS boss likens bitcoin to Dante’s Inferno as currency tops $15,000
Bitcoin has been likened to Dante’s Inferno by the chairman of the Royal Bank of Scotland. As the digital currency surged towards $16,000, Sir Howard Davies suggested it should carry a similarly apocalyptic warning for investors.
Davies, a former head of the UK’s top financial watchdog, called on the Bank of England and other authorities around the world to launch a coordinated warning against the digital currency.
Bitcoin has increased in value by $4,500 in the space of a week, after surging more than 900% this year. It was trading at $15,800 late afternoon on Thursday.
“Put up the sign from Dante’s Inferno – ‘Abandon hope all ye who enter here’ – I think that’s probably what’s needed,” he said speaking on Bloomberg TV, adding that the cryptocurrency appeared to be a “frothy investment bubble”.
Davies argued for Threadneedle Street to take action at the same time as the US Federal Reserve, Securities and Exchange Commission, and the European Central Bank. “Central banks are very anxious about it [bitcoin],” he said.
The call from Davies follows warnings from other senior figures in the world of finance, including the heads of Goldman Sachs and JP Morgan, as well as the Nobel-prize-winning economist Joseph Stiglitz – who has argued that the currency should be outlawed.
Davies also warned major US exchanges against launching trading in bitcoin, just as the Chicago Mercantile Exchange prepares to offer banks and hedge funds the ability to buy and sell derivatives based on the cryptocurrency. Some analysts believe this has the potential to further inflate the price, although it could also lead bitcoin to fall owing to short-selling of the currency.
“I’m not quite sure that they know enough about what [bitcoin] is,” he said, adding that it would be “a very risky move in reputational terms” for major financial firms to start offering trading in bitcoin.
The Financial Times reported on Thursday that some Wall Street banks were pushing back against the launch of bitcoin into the mainstream financial system, warning in a letter to US regulators that the system was ill-prepared.
Economists have compared bitcoin’s meteoric rise with past bubbles, such as the tulip mania of the 17th century and the dotcom bubble that began in the late 90s with the Nasdaq index in New York and burst in 2000. The Guardian recently found little evidence of a wider move for the adoption of the digital currency among shops in the technology hub around Old Street in east London.
The former Fed chairman Alan Greenspan – who coined the phrase “irrational exuberance” when describing overpriced assets during the dotcom bubble – said on CNBC this week that bitcoin was “not a rational currency”.
The Bank of England has made incremental warnings against bitcoin, although Davies said central bankers appeared “nervous about not wanting to be seen to be luddites, saying all of these innovations are bad things”.
Sir Jon Cunliffe, the deputy governor responsible for financial stability, gave brief warnings while speaking to the BBC last week. He said consumers should “do their homework, and think carefully” before buying the currency.
Bitcoin is not regulated by the Bank or the Financial Conduct Authority (FCA), which has, however, warned investors in initial coin offerings – sales of digital coins or tokens such as bitcoin used by startups as an alternative to raising money by issuing shares – that they can lose all of their money.
The UK and other EU governments are taking steps to introduce greater controls, with the Treasury planning to bring cryptocurrencies into line with anti-money-laundering and counter-terrorism financial rules.
Still, there have been no public suggestions about giving the FCA or the Bank powers to regulate the new currencies.
Davies’s warning is likely to raise some eyebrows among bitcoin’s supporters, who view the cryptocurrency as a way of escaping the traditional financial system.
RBS was bailed out by British taxpayers at a cost of £45.5bn after coming unstuck trading risky derivatives and mortgage-backed securities. It remains majority-owned by the government almost a decade later.
But closer scrutiny by financial watchdogs could damage the appeal of bitcoin as a currency free of banks, regulators and governments.
Analysts at Saxobank estimate it could peak above $60,000 next year, giving the digital currency a total worth of more than $1tn, before crashing to $1,000 by 2019 as regulators introduce greater controls.