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A Former Bank Of England Governor Warned The 2008 Crash That Inspired Bitcoin Could Happen Again
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A Former Bank Of England Governor Warned The 2008 Crash That Inspired Bitcoin Could Happen Again

Bitcoin, created in the midst of the 2008 global financial crisis, is a response to the perceived instability of fractional-reserve banking.

Banks accept deposits while making loans and hold only a fraction of those deposit liabilities: a system which led to the U.S. mortgage loan-induced 2008 meltdown and caused bitcoin’s creator, Satoshi Nakamoto, to embed the Times of London headline “Chancellor on brink of second bailout for banks” into bitcoin’s genesis block.

Now, the former Bank of England governor Mervyn King, who served from 2003 to 2013, has warned the world is “sleep walking” towards a second global financial crisis–something that could have huge repercussions for bitcoin and other cryptocurrencies.

King, speaking at the annual meeting of the International Monetary Fund (IMF) in Washington last week, said that by “sticking to the new orthodoxy of monetary policy and pretending that we have made the banking system safe, we are sleepwalking towards that crisis,” adding a similar meltdown could have devastating consequences.

“Another economic and financial crisis would be devastating to the legitimacy of a democratic market system,” he said.

“No one can doubt that we are once more living through a period of political turmoil. But there has been no comparable questioning of the basic ideas underpinning economic policy. That needs to change.”

King’s warning oddly chimes with comments made this week by Mark Zuckerberg, the chief executive of social media giant Facebook, when he was grilled by U.S. senators on Capitol Hill over his company’s plans to create a bitcoin-rival, dubbed libra.

“I believe that this is something that needs to get built,” Zuckerberg said, defending Facebook’s involvement in the controversial project.

The current Bank of England governor Mark Carney has previously called for the creation of a global digital currency that could help prevent future economic meltdowns similar to the 2008 financial crisis.

“If the share of trade invoiced in [a digital currency] were to rise, shocks in the U.S. would have less potent spillovers through exchange rates, and trade would become less synchronized across countries,” Carney said in August, speaking at the annual Jackson Hole economic symposium.

Meanwhile, China is expected to soon release a state-controlled digital currency that would work in a similar way to bitcoin, perhaps using bitcoin’s underlying blockchain technology.

Amidst the partial recovery in the bitcoin price this year, many bitcoin and cryptocurrency investors had hoped that bitcoin’s reputation as “digital gold” would mean it began acting as a so-called safe haven asset, with investors buying into bitcoin at times of political and economic uncertainty.

This appeared to happen earlier this year, until the bitcoin price moved sharply lower as gold and the Japanese yen, two traditional safe havens, climbed.

The bitcoin price remains highly volatilite and no one is able to in anyway predict what the bitcoin price will do next–leading some to think that it won’t be until the next financial crisis that bitcoin will become widely used.

“Bitcoin adoption has always been driven by bank failures, bailouts, bail-ins, and political unrest,” said broadcaster and bitcoin bull Max Keiser late last year.

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