Despite bitcoin’s latest price rally, the world’s largest cryptocurrency is still struggling to reach mainstream adoption, and now the European Union (EU) has warned bitcoin and other decentralised cryptocurrencies could be derailed by the world’s central banks.
A report on fintech competition, commissioned by the European Parliament Committee on Economic and Monetary Affairs (Econ), which oversees the decisions made by the EU’s European Central Bank (ECB), found that if banks and central banks were to issue their own cryptocurrencies it could be bad news for the likes of bitcoin.
“The arrival of permissioned cryptocurrencies promoted by banks, even by central banks, will reshape the current competition level in the cryptocurrency market, broadening the number of competitors,” the report authors at the Police Department for Economic, Scientific, and Quality of Life Policies wrote.
“However, the market power of banks in traditional banking services might be used to limit competition in the cryptocurrency market through pre-emptive acquisitions or predatory pricing schemes.”
Central and commercial banks could price out bitcoin and other cryptocurrencies or institute denials of service, blocking access to exchanges or wallets for users.
The report, which included analysis of competition in banking, forex, insurance, wealth management, personal finance, as well as cryptocurrencies, also found there could be a risk to bitcoin from lack of competition in the mining industry.
Some 79% of the bitcoin mining industry is controlled by only five mining pools.
According to the report the international nature of cryptocurrency markets is also a challenge to European competition policy.
“Many of the players operate from global locations outside the jurisdiction of European competition authorities, which makes investigation or prosecution on anticompetitive behaviours more difficult,” the report found.
“Europe leads, at international level, the supply of wallet and exchange services, with 42% and 37% in terms of number of players. It is also the principal actor in payments (33%). Nevertheless, the main weakness of Europe is the concentration of the mining activity on non-European countries (Europe only captures just 13% of the current mining market),” it added.
The EU report follows a paper from international financial watchdog, the Financial Stability Board (FSB), out last week which found bitcoin and cryptocurrencies do not currently pose a material risk to the global financial system.
The FSB — which has members from the G20 major economies, the European Commission — said it planned to monitor cryptocurrency assets at banks and the world’s largest financial systems.