Bitcoin has huge systemic risk’ according to Chamath

Last Updated: 14 July 2022

Noted investor, Chamath Palihapitiya, warns that bitcoin faces a huge systemic risk.

Systemic risk

Palihapitiya explains that the risks are mainly due to the lack of regulation. According to the Canadian American, this could significantly affect the crypto market.

According to Chamath, bitcoin should have a ‘common set of parameters.’ He is thinking of the possibility of better monitoring the risks of bitcoin.

“The big problem, of course, is that these things will happen if there is no regulatory oversight. The systemic risks will pile up. That’s what we’re dealing with now: a huge amount of systemic risk, largely around bitcoin.”

Still, the investor is bullish on bitcoin. But despite this, in his view, it should be “regulated at all costs.” He thinks it should be classified as a security (or: security) because of its volume and size in the market. Gary Gensler, the chairman of the Securities and Exchange Commission who is responsible for this, does not agree with this statement.

Off-chain risks

The billionaire also shares a similar view about DeFi, which brings enormous risks within the reach of private investors.

Moreover, the venture capitalist is also sounding the alarm about the off-chain layers, which can serve as a loophole for illegal activities.

For example, with the lightning network, you can send bitcoin much more anonymously than via the blockchain. He envisages a scenario in which ‘pump-and-dump’ is organised through these secondary layers. Money flows are not easy to analyse, which does not stop malicious parties from making ‘invisible’ payments.

This is why Chamath, who was an early shareholder in Facebook, is calling on the Ministry of Justice to tackle the influence of the use of off-chain protocols.

Author

  • Ivan came across the topic of cryptocurrencies in early 2016 and, as an author and enthusiast, has been intensively involved with the topics of cryptocurrencies, blockchain and STOs ever since.

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