Bitcoin is expected to break down, says BIS chief

Bitcoin may "break down altogether", according to BIS general manager Agustin Carstens, who has also poured cold water on stablecoin projects such as the Facebook-led Diem and argued that if digital currencies are needed they should be issued by central banks. Bitcoin is "more of a speculative asset than money" that should perhaps "be seen more like a community of online gamers, who exchange real money for items that only exist in cyber space," says Carstens in his peech on digital currencies to the Hoover Institute.

Central bank digital currencies (CBDCs) can combine novel digital technologies with the tried and trusted foundation of central banks. Developing CBDCs comes with a host of technological, legal and economic issues that warrant careful examination before issuance. Central banks – the guardians of stability – will proceed carefully, methodically and in line with their mandates. The BIS is supporting this international discussion, ensuring that central banks can continue learning from one another and can cooperate on key design issues.

His speech speaks on why the "investors must be cognisant that Bitcoin may well breakdown altogether" as it approaches its maximum supply of 21 million coins and faces up to a 51% attack.

The central bank's central banker says that Diem - previously called Libra - is "certainly more credible than Bitcoin" but adds that "overall, private stablecoins cannot serve as the basis for a sound monetary system". These stablecoins may have some specific use cases but need to be heavily regulated and supervised and to be built on the "foundations and trust provided by existing central banks".

As per Carstens, "if digital currencies are needed, central banks should be the ones to issue them". A survey from BIS speaks that 86% of 65 central bank respondents are doing some kind of CBDC research or experimentation, with some - notably China - well on the way to issuing a digital currency. CBDCs could play a catalytic role in innovation, spurring competition and efficiency in payments, says Carstens, but they come with a host of technological, legal and economic issues.

A report from the IMF also suggested that close to 80 percent of the world’s central banks are either not allowed to issue a digital currency under their existing laws, or the legal framework is not clear and there is potential role of CBDCs in enhancing cross-border payments need to be addressed in multilateral forums, said Carstens.