Editorial:Tighten regulations on cryptocurrencies before it is too late

【明報專訊】The prices of cryptocurrencies have gone on rollercoaster rides, and different governments have announced tighter regulations on them. The Hong Kong government has also started to draft legislation to regulate the virtual asset markets. Among the cryptocurrencies introduced more than a decade ago, bitcoin is the most widely known. Its supporters believe that cryptocurrencies can increase the efficiency of transactions and be used as an important payment and settlement tool in the new era. However, there is growing scepticism about them, as some argue that cryptocurrencies like bitcoin do not have any intrinsic value, and are, at best, a substitute for gold. They contend that their highly volatile prices show that they are nothing more than a highly risky speculative instrument at the current stage.

The emergence of cryptocurrencies was closely related to the economic crisis in 2008. The European Central Bank (ECB) and the Federal Reserve adopted quantitative easing (QE) policies in response to the crisis, which were in essence a form of money printing. Bitcoin was launched the next year and became the world's first "decentralised" cryptocurrency with blockchain technology. Unregulated by centralised institutions, its issuance is limited. During the outbreak of the pandemic last year, Europe and the US adopted QE and printed money more ferociously, which caused an overflow of hot money in pursuit of high returns. Thus, the prices of cryptocurrencies surged even more rapidly.

Over the past month, the price of bitcoin plunged by more than 50% at one point, inflicting hefty losses on many investors. The People's Bank of China ordered that mainland financial and payment institutions must not accept cryptocurrencies as a payment and settlement tool. The US Treasury Department also announced that it would require transactions of cryptocurrencies worth US$10,000 or above to be reported to the Internal Revenue Service. Early this year, the Hong Kong government launched a public consultation exercise on the regulations of virtual asset trading platforms, with the major direction being the introduction of a licensing regime.

Cryptocurrencies make transactions on digital platforms easy. Free from geographical restrictions, they can enhance the efficiency of transactions. The anonymous and untraceable nature of private cryptocurrencies, however, can be a double-edged sword. Supporters argue that there have been many misunderstandings and negativities concerning cryptocurrencies, and those who criticise them have failed to identify their potential and value. Nevertheless, it must be acknowledged that cryptocurrencies can be a very convenient money laundering tool for a handful of unscrupulous people.

The wild swings in the prices of bitcoin and Dogecoin in recent months were attributable to not only legislation proposed in numerous countries but apparently also the U-turns of some super-rich people. Tesla, a US electric vehicle maker, bought a large number of bitcoins earlier. Its CEO Elon Musk announced that customers could buy cars with bitcoins, but soon he backtracked on the promise. Renowned American economist Nouriel Roubini pointed out bluntly that some of Musk's tweets were tantamount to market manipulation attempts.

A report from the ECB warns that bitcoin may be the biggest economic bubble of this century. Roubini and Nobel laureate in economics Paul Krugman have even questioned whether the current situation of cryptocurrency speculation amounts to a "Ponzi scheme". As investment products, cryptocurrencies are extremely risky and not suitable for retail investors. The Hong Kong government intends to establish a licensing regime for virtual asset service providers. The licensed exchanges can only provide services for professional investors with eight million dollars in liquid assets. This will in effect prevent retail investors from investing. The authorities must be prudent when drafting the relevant regulations rather than rush things through.

明報社評 2021.05.27:加密貨幣監管從嚴 莫待出事才來後悔







■Glossary 生字

scepticism : an attitude of doubting that claims or statements are true or that sth will happen

emergence : the fact of beginning to be known or noticed

inflict : to make sb/sth suffer sth unpleasant

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