The head of Britain’s financial market regulator said bitcoin is not a real currency and warned people could lose all their money if they invest.
Andrew Bailey, head of the Financial Conduct Authority (FCA), told the BBC the cryptocurrency was not a secure investment and was similar to gambling. He said neither central banks nor the government backed bitcoin, making it high risk.
“It’s not a currency, it’s actually not regulated in its bitcoin form,” Bailey told BBC Newsnight. “It’s a very volatile commodity in terms of its pricing. If you look at what has happened this year, I would caution people,” he said.
“If you want to invest in bitcoin be prepared to lose your money — that would be my serious warning,” said Bailey.
Bitcoin has soared in value this year, rising over 1,000% against the dollar so far. This has prompted both increased interest and concern from investors and financial executives. Bitcoin was near its all time high point on Friday morning, at $17,176.
Bailey said relatively little was known about what drives the price of bitcoin. He described bitcoin as a commodity, which he said financial regulators did not currently oversee, and denied regulators were being left behind by new technology.
He said it was for the government to decide whether or not to change the rules and have cryptocurrencies and other commodities fall under the FCA’s remit. Bailey said he was not pressing for this change.
He warned the use of the term “currency” to describe bitcoin was misleading, and was causing people to regard it as a “fiat currency.” A fiat currency is backed by a central authority, which is “what preserves the value of the currency through the actions that central banks take,” said Bailey.
He also pointed to the fact that bitcoin buyers and sellers are anonymous, something that has caused concerns that it is being used to facilitate financial crimes and launder money.
The UK government is planning to crack down on bitcoin and other cryptocurrencies in response to these concerns. New UK legislation will include forcing traders to reveal their identities in some circumstances, and under an EU-wide plan online platforms where cryptocurrencies are traded will be forced to carry out due diligence on buyers.
Earlier this week, a BlackRock executive expressed caution over the cryptocurrency, saying “we are seeing bubble-like valuations.”