Central bank digital currencies (CBDCs) do not pose any direct threat to cryptocurrencies like Bitcoin (BTC) but are still associated with risks in relation to stablecoins, one industry executive believes.
According to Mikkel Morch, executive director at the digital asset hedge fund ARK36, a state-backed digital currency like the U.S. dollar doesn’t necessarily have to be a competitor to a private or a decentralized cryptocurrency.
That’s because the use cases and value proposition of the decentralized digital assets “often go beyond the realm of simple transactions,” Morch said in a statement to Cointelegraph on Thursday.
The exec referred to Federal Reserve Chair Jerome Powell who earlier this year hinted that the United States government would not stop a “well regulated, privately issued stablecoin” from coexisting with a potential Fed digital dollar.
As such, active commitment to the CBDC development does not mean that other countries like Singapore are unfriendly to non-state-backed cryptocurrencies, Morch said. The executive suggested that a CBDC roll-out may even “facilitate the proliferation of non-sovereign cryptocurrencies and blockchain technologies.”
However, the concept of a CBDC is still associated with some risks in regard to stablecoins, Morch noted, stating:
“Admittedly, though, a CBDC may diminish the role of and the demand for privately issued stablecoins provided that there is a market for stablecoins already in the country — which is more the case in the U.S. than it is in Singapore.”
Morch’s remarks came in response to Singapore’s financial regulator and central bank pledging to be “brutal and unrelentingly hard” on any “bad behavior” from the cryptocurrency industry.
On June 23, Singapore’s Monetary Authority’s (MAS) chief fintech officer Sopnendu Mohanty expressed a lot of skepticism about the value of private cryptocurrencies. He also said that he expected a state-backed alternative to be launched within three years.
ARK36’s Morch also tied Mohanty’s latest comments to the recent dramatic events in the crypto industry, including the failure of the Terra ecosystem last month, the liquidity crisis of the Celsius crypto lending platform and Three Arrows Capital’s insolvency.
Related: Stablecoins highlight ‘structural fragilities’ of crypto — Federal Reserve
Morch specifically suggested that MAS’ comments on going brutal make a lot more sense if one takes into account that Three Arrows Capital, also referred to as 3AC, is a Singapore-based firm. “If half of the rumors about how the fund handled the capital of its customers are true, there is little wonder that Singapore’s financial authority sees the need for more regulation in the space,” he added.