Bitcoin Moves Toward $9000 Despite ‘High Risk’ Warning From European Regulators

Bitcoin moved further above the $8,000 mark Monday as the cryptocurrency’s recovery from a tumultuous week continued.

It was holding steady despite European regulators warning consumers the asset class is “highly risky” and that they have no protections against losses under EU law.

X In addition, New York Fed economists have questioned in a research paper whether cryptocurrencies will ever become established means of exchange in the United States and other advanced economies.

Bitcoin had fallen below $7,000 Sunday morning, but rebounded above $8,000 later that day. The cryptocurrency was trading at $8,863.74, up 9.8% vs. the prior day, according to Coindesk. That’s slightly higher from where it traded late Friday. Ethereum was 7.3% higher, while Bitcoin Cash had also increased 5.3%.

Bitcoin tumbled to a two-month low below $6,000 intraday last Tuesday. However a Senate Banking Committee hearing that day on the potential dangers of investing in digital currencies was not as negative as feared. Bitcoin rebounded that day and through the week.

But its value is still far below the all-time high price of more than $19,500 in December.

Among Bitcoin-related stocks, Riot Blockchain (RIOT) jumped 9.3% on the stock market today, Long Blockchain (LBCC) rallied 3.2%, (OSTK) lost 5%, Marathon Patent Group (MARA) climbed 2.85%, and Bitcoin Investment Trust (GBTC) was up 3.3%.

IBD’S TAKE: Bitcoin lost more than half its value in just a few weeks, leaving many investors with big losses. Get ahead of the curve by watching IBD’s special online seminar Tuesday that will explain how to use cryptocurrency charts to buy right and lock in profits.

Prices were holding firm despite yet another dire warning, this time from the European Securities and Markets Authority, European Banking Authority, and the European Insurance And Occupational Pensions Authority.

In a joint report they said a lack of oversight and regulation means it is a dangerous sector to invest in.

“The (cryptocurrencies) currently available are a digital representation of value that is neither issued nor guaranteed by a central bank or public authority and does not have the legal status of currency or money,” regulators said in their report. “They are highly risky, generally not backed by any tangible assets and unregulated under EU law, and do not, therefore, offer any legal protection to consumers.”

Among the risks cited in the report are extreme volatility and bubble risk, absence of protection, lack of exit options, lack of price transparency and the risk of virtual currency exchange operational disruptions, which can prevent consumers from selling when they want.

They also said the information made available to consumers wishing to buy virtual currencies, when it is even provided, is in most cases incomplete, difficult to understand and does not properly disclose the risks.  Finally, the high price volatility is said to make cryptocurrencies unsuitable for most purposes, including investment or retirement planning.

Meanwhile, Federal Reserve Bank of New York economists Michael Lee and Antoine Martin have questioned in a recent research paper whether digital currencies will ever take off in the developed world, arguing that they are a solution to a problem that doesn’t exist.

“Cryptocurrencies arguably solve the problem of making payments in a trustless environment, but it is not obvious that this is a problem that needs solving, at least in the United States and other advanced economies,” Martin said. “Fundamentally, we wonder whether a payment method designed to function where trust in institutions is completely absent can ever be as convenient as one where trust is required, but also already exists.”

In addition, the anonymity afforded when transacting in digital currencies has made them a useful tool for illicit activities.

“Criminals, who typically use cash for the anonymity and security it provides, may be moving to cryptocurrencies,” Lee said. “The Drug Enforcement Administration reports a sharp decline in bulk cash smuggling in 2016, which is the traditional payment method for drug shipments and suggests that payments may have shifted toward cryptocurrencies.”

He also said digital currencies have proved to be more convenient for many illegal operations than operating with cash, and pointed out that the value of Bitcoin plunged following a government crackdown on online black marketplace Silk Road back in 2013.


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