In an exclusive interview with the Danish Media House DR, Lars Rohde, the governor of Danmarks Nationalbank (the Danish Central Bank) called Bitcoin “deadly”. He further likened it to the Tulip mania of 17th-century Dutch Golden Age which history records as the biggest bubble ever. He warned Danish citizens to “stay away” from it in what can only be described as a damning indictment of the fast-rising cryptocurrency market.
This is by no means the first time that a Government official has lambasted Bitcoin and the cryptocurrency market in general. It has been given several unflattering designations such as passing fad, mirage, Ponzi scheme, and bubble just to mention a few. It is a much-maligned market in mainstream circles as allegations of support for terrorist funding, as well as money laundering and tax evasions, have also been laid at the doorstep of the industry.
While it is normal to expect this sort of reaction from the mainstream financial sector considering that cryptocurrencies are a huge disruption to the industry, these comments from Rohde have certainly taken it up a notch. Bitcoin and the cryptocurrency market, in general, is a bit of a divisive topic for many. On both sides of the aisle, there are numerous arguments and counterarguments for and against the longevity of the system. A lot of the buzz, hype, and conflict have to do with a number of issues that surround the operating architecture of cryptocurrencies. Chief among these issues are anonymity and lack of regulation.
More than a bit like Gambling
Almost any form of investment can be seen as a bit like gambling. Nothing is ever certain and a lot can go wrong in the blink of an eye. It is for this reason that there exists a robust statutory regulatory framework which offers protection for investors in the mainstream financial market. Even with all these checks and balances, the system does experience failures in the form malpractices and corporate malfeasance as seen during the debilitating 2008 Global Financial Crisis.
In the case of Bitcoin and other cryptocurrencies, there is virtually no regulation in place to protect investors. Lars Rohde describes this as being more than a bit like gambling. He calls it an effective way to play around if you don’t fancy the casino scene. He is quite literally comparing the Bitcoin market to a casino. While some may point to the harshness of this comment but there are others who will agree wholeheartedly. The market is volatile, there are virtually no rules and the whole thing can come crashing down like rolling snake eyes in the middle of a great roulette round.
Bitcoin is a Bubble
During the interview, Rohde categorically called Bitcoin a bubble that is going out of control. Drawing a comparison with the Tulip mania and warned that just like calamitous ending suffered by many merchants and holders of tulips in 17th-century Netherlands, people were running the risk of huge losses when the Bitcoin bubble inevitably bursts. The Bitcoin bubble narrative isn’t exactly new as it has been in fact been likened to the ‘dot com’ bubble of not so long ago.
Similar sentiments have been echoed by other bank chiefs from around the world. Stephen Poloz, the governor of Canada’s Central Bank recently declared that the cryptocurrency hype was causing him insomnia. His biggest grouse is one that is shared by many stakeholders in the financial industry and that is the lack of regulation. Investors have absolutely no control over the value of the cryptocurrency assets.
The price of Bitcoin continues to soar and on the face of it, it seems like a great investment opportunity. The market capitalization is also growing tremendously but this growth will certainly not continue in like manner when all the Bitcoins have been mined by 2022. Right now, according to Poloz, the only risk-free mode of payment for Bitcoins is via fiat currency which is provided by central banks. According to him, this flies directly in the face of a system that sees itself as the replacement for fiat money.
Despite the strong comments from these bank chiefs, it would be incorrect to state that these countries are hostile towards Bitcoin and cryptocurrencies in general. In fact, the opposite is just the case and this leads to a great deal of confusion among those who are monitoring the situation. Canada is among one of the friendliest Bitcoin countries in the world. In Denmark, Bitcoin Suisse just concluded a partnership deal to sponsor the Rungsted Seier Capital which is major league hockey team. As part of the deal, some of the players will receive their pay in Bitcoins and the team’s stadium has even been rechristened the “Bitcoin Arena.”
The best possible way to capture the overall narrative is to paraphrase Lars Rohde who says that individuals have a responsibility to protect themselves and that they shouldn’t come running to the government if it all goes wrong. Whatever the future holds for Bitcoin, only time will tell but for now, the price continues to soar; $19,000 and counting.