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Stablecoins, Riskycoins, and Dodgycoins

Recent price implosions have shown that not all so-called stablecoins are so stable after all. As policymakers draft regulations to bring some order to the crypto industry, they should focus on the economic functions that various digital tokens perform, rather than on formal legalistic labels.

NEW YORK – With no intrinsic value, no backing by anything, and a freely floating price, Bitcoin is too volatile to be appealing as a medium of exchange or a store of value. These flaws have given rise to other cryptocurrencies that are convertible on demand at a set price to something that is supposed to be more stable. But the British Financial Conduct Authority has rejected calling them “stablecoins,” on the grounds that their purported stability is merely aspirational. Policymakers in the European Union and the United States also will need to consider these issues as they draft new laws regulating cryptocurrencies.