ECB warns of financial stability risks from bitcoin trading

Yves Mersch, an executive board member of the European Central Bank, has warned of the heightened threats to financial stability posed by banks and financial infrastructure providers building up positions in volatile cyrptocurrencies such as bitcoin.

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ECB warns of financial stability risks from bitcoin trading

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Responding to a query about the rising value of bitcoin in German financial daily Borsen Zeitung, Mersch cited the relatively modest turnover in bitcoin as of little consequence to monetary policy.

However, while individual investors are "free to gamble", Mersch warned off banks and exchanges from dabbling in the new form of money.

"There are now banks which hold positions in bitcoin. It is a matter for the supervisors to judge how big the risks are," he says. "What concerns me most, is when financial market infrastructures such as stock exchanges enter this business. That poses a major threat to financial stability."

Mersch's words come as bitcoin valuations continue a pattern of rapid spikes and descents in value that preceded the entry of major US futures and options markets into the business.

The ECB is particularly concerned about the systemic risks posed by the arrival of big exchanges such as the CBOE and CME and the deeper links they have across the financial system as a whole.

"If these transactions are kept separate from others, it’s a secondary matter who wins and who loses," he says. "However, if all the participants in these financial centres are jointly liable, that can create difficulties, for instance, for banks or the whole system. And if the banking system gets into trouble, there will again be demands for support from the ECB. I would say from the outset: we shouldn’t do this."

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