RBA payments head sceptical about crypto’s future

  • By Zilla Efrat

A range of factors could come together to dampen the current fervour for cryptocurrencies, Tony Richards, the Reserve Bank of Australia’s head of payments policy, said yesterday.

If they did, the current speculative demand for them could begin to reverse and much of the price jumps of recent years could be unwound, Richards said in an address to the Australian Corporate Treasury Association.

For example, he said demand could fall if households became less influenced by fads or the fear of missing out. It could also happen if they started to pay more attention to the warnings of securities regulators and consumer protection agencies about the risks of investing in something “with no issuer, no backing and a highly uncertain value”.

“The very high use of energy involved in mining proof-of-work cryptocurrencies could attract greater attention from governments and policymakers,” added Richards.

“The most recent estimates from Digiconomist.net put the annualised energy usage of the Bitcoin system at similar to that of Thailand, the world's 23rd largest economy in terms of energy consumption.

“Ethereum has been planning to switch from proof-of-work consensus to the less energy-intensive ‘proof-of-stake’ for many years, with this now scheduled to happen in 2022. However, for the time being, Ethereum's energy usage is estimated to be equivalent to the Philippines, the 35th largest economy in terms of energy consumption.

“Together, energy consumption to run the Bitcoin and Ethereum systems is estimated to be close to the energy consumption of the world's 13th largest economy.”

Richards added that more attention could also be focused on the (near) anonymity that many cryptocurrencies can offer and their potential use in facilitating financial crime and the black economy.

“Tax authorities and agencies with responsibility for preventing financial crime could pay greater attention to transactions going through the on- and off-ramps linking cryptocurrencies to the traditional financial sector, for example, digital currency exchanges.”

At best, Richards believed that cryptocurrencies might have only a niche use case if there was global policy action to deal with some particular concerns around their use and new stablecoins and central bank digital currencies were launched that safely met the needs of a wide range of users.

“If so – and also reflecting that the relevant code is often open-source, publicly available and easily copied – it seems plausible that current valuations of many cryptocurrencies would not be sustained,” he said.

Richards said cryptocurrencies may have captured the attention of many, no doubt fuelled by influencers and celebrity tweets, but it was unclear how widely held they were.

“Some surveys have claimed that around 20 per cent of the Australian population hold cryptocurrencies, and one claimed that Dogecoin alone was held by 5 per cent of Australians,” he said.

“I must say that I find these statistics somewhat implausible. I cannot help thinking that the online surveys they are based on might be unrepresentative of the population.”