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Abu Dhabi, UAESunday 16 December 2018

Most cryptocurrencies are like Ponzi schemes, World Bank chief says

The value of digital currencies soared in 2017 before slumping, with Bitcoin losing nearly two-thirds of its value since mid-December

The World Bank chief is one of many senior financial figures who have cast doubts on cryptocurrencies such as Bitcoin. Jack Guez / AFP
The World Bank chief is one of many senior financial figures who have cast doubts on cryptocurrencies such as Bitcoin. Jack Guez / AFP

As Bitcoin continues to oscillate wildly, putting on 14% in value between Tuesday and Wednesday, the head of the World Bank compared cryptocurrencies to ‘Ponzi schemes’, becoming the latest financial voice to raise questions about the legitimacy of such digital currencies.

“In terms of using Bitcoin or some of the cryptocurrencies, we are also looking at it, but I’m told the vast majority of cryptocurrencies are basically Ponzi schemes,” World Bank group president Jim Yong Kim said at an event in Washington on Wednesday. “It’s still not really clear how it’s going to work.”

The development lender is “looking really carefully” at blockchain technology, a platform that uses so-called distributed ledgers to allow digital assets to be traded securely. There’s hope the technology could be used in developing countries to “follow the money more effectively” and reduce corruption, Mr Kim said.

The value of cryptocurrencies soared in 2017 before slumping, with Bitcoin losing nearly two-thirds of its value since mid-December.

While cryptocurrency technology has the potential to reshape global finance, concerns have been raised about its volatility and the potential for money laundering or other crimes.

In a speech this week, Bank of International settlements chief Agustin Carstens said there is a “strong case” for authorities to rein in digital currencies because their links to the established financial system could cause disruptions. Federal Reserve chair Jerome Powell has said that “governance and risk management will be critical” for cryptocurrencies.

Meanwhile, according to Cameron Winklevoss, one of the twins who were involved at the start of Facebook, Bitcoin could be worth 40 times its current value one day.

Talking to CNBC, he said: “If you look at a $100 billion market cap today [for Bitcoin], now last week it might have been more like 200, so it's actually a buying opportunity, we think that there's a potential appreciation of 30 to 40 times because you look at the gold market today, it’s a $7 trillion market.”

Also read: Winklevoss twins give thumbs up to crypto regulation