Bitcoin has exploded into 2021, demanding the attention of Wall Street and regulators alike.
The bitcoin price broke fresh ground for the first time in three years last month, roaring to over $40,000 per bitcoin before falling back slightly (even as smaller cryptocurrencies continue to climb).
Now, as the bitcoin price struggles to hold above $30,000 per bitcoin, former Goldman Sachs
“If I were a regulator … I would be kind of hyperventilating at the success of [bitcoin] at the moment and I’d be arming myself to deal with it,” Blankfein told CNBC this week, warning against bitcoin as either a medium of exchange or as a store of value due to bitcoin’s semi-anonymous nature and its wild price swings.
“You don’t know whether or not you’re paying the North Koreans or Al Qaeda or the Revolutionary Guard,” Blankfein said, adding bitcoin’s regular 10% daily moves make “the store of value element a little bit tough.”
Bitcoin soared to highs of $42,000 earlier this month but dropped under $30,000 yesterday amid fears the bitcoin bubble could be about to burst.
Blankfein also echoed concerns raised earlier this month by new U.S. Treasury secretary and former chair of the Federal Reserve Janet Yellen, who warned illicit bitcoin and cryptocurrency use is “a particular concern.”
“I think many [cryptocurrencies] are used, at least in transactions sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels,” Yellen told the Senate Finance Committee.
Many in the bitcoin and cryptocurrency community hit back at Yellen’s claims, arguing illicit transaction make up only a tiny percentage of bitcoin and cryptocurrency use.
However, as bitcoin and crypto popularity grows, regulators may find themselves under pressure to act, according to Blankfein.
“At the end of the day, if [bitcoin] ever got big enough to be substantial and a real medium of exchange, how could the regulators, so focused as they are on anti-money laundering” not step in. “Do we want that to work out well over the long term,” Blankfein asked.
Despite his warnings, Blankfein does see a route to success for bitcoin, but thinks it will mean trade-offs will have to be made.
“[Bitcoin] could be workable but [regulations] will undermine the freedom and liberty and kind of lack of transparency that people like about it in the first place so that’s the conundrum that bitcoin will have to deal itself out,” he said.
Bitcoin’s strong start to the year means institutional investors are increasingly looking at cryptocurrencies, suggesting we’re likely to hear more about bitcoin from Wall Street and regulators in coming months.
“We entered a new bull market when bitcoin punched through the $20,000 high seen in 2017, sending a signal that institutional investors and big hedge funds are willing to wager that crypto is a real asset,” Kay Van Petersen, global macro strategist at Saxo Bank, said in emailed comments.
“It’s still early days for crypto, with the only certainty being volatility and plenty of divergent views on the space, as well as the overhang of regulatory risk.”
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