Meme coins, like Dogecoin and Shiba Inu, have been slammed by the Reserve Bank of Australia (RBA) as being “free of any useful function”.
Also read: The best altcoins to buy with a $500 budget
Here is a summary of the central bank’s arguments on crypto.
RBA’s arguments against crypto
They are a fad and investors' fear of missing out has inflated prices
The practice of mining is bad for the environment and will attract government intervention
The anonymity of crypto can lead to an increase in crime
Richards said there was a “faddish” element to the crypto market which had led Aussies to invest in the space, forcing the prices higher.
He said that once the feverish demand started to dwindle, many coins could lose a great deal of their value.
“I think there are plausible scenarios where a range of factors could come together to significantly challenge the current fervour for cryptocurrencies, so that the current speculative demand could begin to reverse, and much of the price increases of recent years could be unwound,” he said.
“Households might be less influenced by fads and a fear of missing out and might start to pay more attention to the warnings of securities regulators and consumer-protection agencies in many countries about the risks of investing in something with no issuer, no backing and highly uncertain value.”
Richards also said the practice of crypto mining was damaging to the environment, which would likely require government intervention.
“The very high use of energy involved in mining proof-of-work cryptocurrencies could attract greater attention from governments and policymakers,” he said.
“The most recent estimates from Digiconomist.net put the annualised energy usage of the Bitcoin system at similar to that of Thailand.”
Cryptocurrency being used for crime was also a major concern for the bank, with Richards saying that would attract greater scrutiny.
“There could be greater focus on the [near] anonymity that many cryptocurrencies can offer, and their potential use in facilitating financial crime and the black economy,” Richards said.
“Tax authorities and agencies with responsibility for preventing financial crime could pay greater attention to transactions going through the on- and off-ramps linking cryptocurrencies to the traditional financial sector - for example, digital currency exchanges.”