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Bank of England's Bailey on crypto: 'Be prepared to lose all your money'

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·Senior City Correspondent, Yahoo Finance UK
·3 min read
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Chief Executive of the Financial Conduct Authority Andrew Bailey speaks at a press conference at the Bank of England in London, Britain February 25, 2019. Kirsty O'Connor/Pool via REUTERS - RC1FC55B71B0
The comments came after the governor was asked whether the Bank of England was concerned about wild price swings seen over the last six months in crypto. Photo: Kirsty O'Connor/Pool via REUTERS

Bank of England governor Andrew Bailey has a blunt message for cryptocurrency investors: be prepared to lose all your money.

"I'm afraid they don't have intrinsic value," Bailey told journalists on Thursday. "Now that doesn't mean to say that people don't put value on them because they can have extrinsic value. But they have no intrinsic value. 

"So I'm going to say this very bluntly again: buy them only if you're prepared to lose all your money."

Read more: Bank of England governor 'carefully' watching Reddit trading boom

The comments came after the governor was asked whether the Bank of England was concerned about wild price swings seen over the last six months in crypto. 

Bitcoin (BTC-USD) and ethereum (ETH-USD) — the world's two biggest cryptocurrencies — have surged to new record highs this year thanks to increased institutional adoption and a revival in retail interest. 

However, the vertiginous price rises have sparked frenzied activity elsewhere in the market. The most high-profile example is Dogecoin (DOGE-USD), the joke cryptocurrency that has risen from relatively obscurity to become the world's fourth biggest crypto token with a market value above $70bn.

Analysts are at a loss to understand Dogecoin's daily price moves, which seems to be largely motivated by memes and Elon Musk tweets. The meme token is subject to huge volatility — this week alone it surged 55% before falling 10% the next day.

Watch: What is bitcoin?

Read more: The history of dogecoin, the joke currency that's worth more than Barclays and Lloyds

The current crypto craze appears to be an extension of the retail stock trading boom witnessed at the beginning of this year. An army of amateur investors coordinated on Reddit to wage a war against short sellers in stocks like GameStop (GME) and AMC cinemas (AMC). Share prices swung wildly and some analysts warned that corners of the market were becoming unmoored from reality. US Federal Reserve president Jerome Powell recently said valuations look "frothy".

In February, Bailey said he was "carefully" watching the retail trading boom and the governor repeated this phrase again on Thursday.

"Markets are something we watch very carefully," he said.

Bailey said crypto trading and retail investing were the remit of the Bank of England's Financial Policy Committee (FPC), which delivers its next report in June.

Read more: 'Good news' as Bank of England predicts bumper year for growth

"There have been a number of developments over the last few months," he said. "I wouldn't say any of them, on their own should be taken in their own right to be a financial stability risk but the FPC will be looking very carefully at the collective sum of the evidence."

The comments came as the Bank of England delivered its latest monetary policy decisions and published updated forecasts for the UK economy.

Watch: What are the risks of investing in cryptocurrency?