German Central Bank Official Issues Another Bitcoin Warning

A German central bank official has issued another bitcoin warning, reiterating the bank's earlier position on digital currencies.

Last December, Bundesbank's President Jens Weidmann told Wirschaftswoche that bitcoin was not an alternative to national currencies and that bitcoins were only used as currency in certain niches.

Weidmann stressed that the driving factor behind the demand for bitcoin was the hope of big payouts, which may prove elusive for most investors.

On Monday, Bundesbank board member Carl-Ludwig Thiele told German financial magazine Handelsblatt that bitcoins remain highly speculative, as they are as volatile as ever.

He stressed that regulators and central bankers across Europe are discussing bitcoin and trying to raise public awareness, but so far no concrete action has been taken, apart from public warnings.

Thiele maintains that bitcoins are an exceptionally risky investment. “Because of its design and because of the large volatility, bitcoin [is] highly speculative," he said. “We do not see that the price is being driven by fundamentals.”

He also pointed out that bitcoin investors have absolutely no guarantee in case something goes wrong:

“There is not state guarantee for bitcoin and investors might lose all of their money. The Bundesbank is warning emphatically about these risks.”

Thiele added that bitcoins do not pose a threat to financial stability, due to their low volumes and amount of bitcoins in circulation. He said that about 70,000 bitcoin transactions take place worldwide each day, a figure dwarfed by the 59.8 million regular payments made in Germany each day.

However, although bitcoin does not pose a risk to financial stability, the same cannot be said of individual investors.

Thiele’s views are in line with previous statements made by Bundesbank officials and warnings issued by the European Banking Authority in December. However, it should be noted that Germany and most other European countries have a relatively liberal attitude towards digital currencies.

The big question is whether this is about to change, as Thiele points out that regulators and central bankers are starting to discuss bitcoin proliferation and, quite possibly, bitcoin regulation.