Bank of England governor Mark Carney said cryptocurrencies are failing as a system of money.
In a speech to the inaugural Scottish Economics Conference, Carney posed the question: "How well do cryptocurrencies fulfil the roles of money?"
In response, the Bank chief said: "The long, charitable answer is that cryptocurrencies act as money, at best, only for some people and to a limited extent, and even then only in parallel with the traditional currencies of the users.
"The short answer is they are failing."
He added: "Cryptocurrencies are proving poor short-term stores of value. Over the past five years, the daily standard deviation of bitcoin was ten times that of sterling. Consider that if you had taken out a £1,000 student loan in bitcoin in last December to pay your sterling living costs for next year, you’d be short about £500 right now. If you’d done the same last September, you’d be ahead by £2,000. That’s quite a lottery.
"And bitcoin is one of the more stable cryptocurrencies. Indeed, the average volatility of the top ten cryptocurrencies by market capitalisation was more than 25 times that of the US equities market in 2017."
This extreme volatility reflects the fact there is no intrinsic value nor any external backing for cryptos, Carney said.
He also said it was difficult to make out how useful cryptos could be as money given that so few companies will accept them in exchange for goods or services.
However, Carney said: "Some of the underlying technologies are exciting. Whatever the merits of cryptocurrencies as money, authorities should be careful not to stifle innovations which could in the future improve financial stability; support more innovative, efficient and reliable payment services as well as have wider applications."
The Bank boss said regulation of cryptos was key to harnessing the benefits of the new technology.
"The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system. Being part of the financial system brings enormous privileges, but with them great responsibilities," Carney said.
"Bringing crypto-assets onto a level regulatory playing field could also catalyse private innovation to create a more resilient, effective payments system. With these foundations in place, the scene is set for better payments, a better economy and a better Friday night out."