They are excessively volatile and illiquid due to the fragmented nature of unregulated exchanges and their high ownership concentration: 96% of current bitcoin holdings are estimated to be held by 2.5% of users. This facilitates price manipulation and other misconduct and is further compounded by operational and technical weaknesses of the underlying technology3 Yet, VCs do not appear to pose material financial stability risks.
This situation is very much a result of the segmentation of national markets, which have been built around national securities depositories and settlement systems intimately connected to the national payment infrastructures The challenge is to remove institutional and economic factors that raise the cost of cross-border operations.