Allianz Chief Economic Advisor warns that Bitcoin is “not too big to fail”

Allianz Chief Economic Advisor, Mohamed El-Erian told CNN on Monday that Bitcoin is “not too big to fail” and should the cryptocurrency collapse, it is likely to disrupt the global monetary system.

On air with CNN anchor Julia Chatterlee, El-Erian said the following:

“From a narrow perspective, it’s not too big to fail; from a broader perspective, that would be another challenge to the liquidity paradigm, where investors simply bet on liquidity.”

He added:

“We’ve already had three near-accidents, so you’ve got to be careful, you never know which little fender bender is going to cause a pile up on the highway.” 

El-Erian discussed the private sector that continues to adopt Bitcoin and issued a warning about the threat governments possible pose to the cryptocurrency.

“This is an asset that wants to establish itself, but it can only establish itself if governments allow it to,” El-Erian said, adding, “Be cautious, because not only are you assuming on private sector adoption, but you’re also assuming on government tolerance, and that second one, I’m not so sure about.”

According to El-Erian, Bitcoin “captures three things,” three types of investors and all should concern Central Banks.

The first type of investors are those that “truly believe Bitcoin will become money,” El-Erian said. “If you’re a central bank and you have a monopoly over money, that’s not very reassuring at all,” he continued.

Next are the ones that can be described as negative investors. According to El-Erian, “they’re being pushed out of everything else and pushed into Bitcoin. It’s like being pushed into a marriage.” And they do this because there is no other way that these investors know how to mitigate risk.

The final type of investor type is straightforward. It is the kind that is looking for profits, the traditional pure speculator. “Where else do you get 20% returns or losses in a single day?” El-Erian says.

According to El-Erian, central banks should be concerned about all three of these investors as they can all cause problems to central banks when the Bitcoin price is stable above $50,000. And this is why he believes that central banks will become increasingly involved in cryptocurrencies as they simple cannot afford to remain on the bench.

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