BSP reiterates ‘risky’ nature of crypto amid FTX collapse
Felipe Medalla —BSP PHOTO
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) highlighted anew the perils of blindly investing in cryptocurrency in light of the recent bankruptcy of cryptocurrency exchange FTX, indicating a cautious policy stance even as it studies the prospects of these digital assets.
In a message sent to the Inquirer on Monday, BSP Governor Felipe Medalla reiterated his stance on investing in the digital currency when sought for comment about the bankruptcy of FTX led by its former chief executive officer Sam Bankman-Fried.
“I have already said many times in the past that crypto assets are very risky and those who invest are advised to invest only what they can afford to lose,” Medalla said.
The BSP official earlier expressed his concerns toward these digital assets, explaining that cryptocurrencies depend on the “greater fool theory,”—implying that cryptocurrencies are overvalued assets, and their value relies on the people willing to buy them.
Cryptocurrency is a form of digital currency registered in a digital database called a blockchain. These digital assets are not issued by central banks, thus carry with them all the risk and rewards of an unregulated currency.
He has likewise previously warned investors about the high volatility and insufficient consumer protection at this time for investors in cryptocurrencies.
Potential
Still, the BSP began exploring the potential of cryptocurrency during the term of Medalla’s predecessor, former Governor Benjamin Diokno, with plans to launch a central bank digital currency or CBDCs.
Digital currency project
The CBDCPH project will include operations like policy and regulatory considerations; technological infrastructure; governance and organizational requirements; legal matters; payment and settlement models; reconciliation procedures; and risk management.
The monumental fall of FTX, reported as the world’s second largest cryptocurrency exchange, was spurred on when a news report from CoinDesk—a crypto industry news service —claimed that a crypto hedge fund owned by Bankman-Fried held billions of dollars’ worth of FTT, the cryptocurrency exchange’s own digital coin, raising questions over its solvency.
This then prompted Changpeng Zhao, chief executive of Binance, to move to liquidate the company’s entire holdings of FTT tokens. This led to the evaporation of FTX’s fortune estimated at around $15 billion, and raised questions over the very concept of cryptocurrencies.
