Central bank digital currencies (CBDCs) do not pose a direct threat to cryptocurrencies like bitcoin (BTC), but still pose risks to stablecoins, according to an industry executive.

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According to Mikkel Morch, chief executive of digital asset hedge fund ARK36, a government-backed digital currency like the US dollar doesn’t have to be a competitor to a private or decentralized cryptocurrency.

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This is because the use cases and value proposition of decentralized digital assets “often go beyond simple transactions,” Morch said in a statement to Cryptooshala on Thursday.

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The chief executive referred to Federal Reserve Chairman Jerome Powell, who earlier this year hinted that the United States government will not prevent a “well-regulated private stablecoin” from coexisting with a potential Fed digital dollar.

Thus, the active commitment to CBDC development does not mean that other countries, such as Singapore, are unfriendly towards non-state-backed cryptocurrencies, Morch said. The chief executive suggested that the rollout of the CBDC could even “promote the spread of non-sovereign cryptocurrencies and blockchain technologies.”

However, the CBDC concept still comes with some risks regarding stablecoins, Morch noted, stating:

“However, it should be recognized that a CBDC may reduce the role and demand for privately issued stablecoins, provided that the country already has a stablecoin market, which is more the case in the US than in Singapore.”

Morch’s remarks came in response to Singapore’s financial regulator and central bank vowing to be “cruel and unrelentingly tough” on any “bad behavior” from the cryptocurrency industry.

On June 23, Singapore Monetary Authority (MAS) Chief FinTech Officer Sopnendu Mohanty expressed great skepticism about the value of private cryptocurrencies. He also said he expects a government-backed alternative to launch within three years.

ARK36’s Morch also linked Mohanty’s latest comments to recent dramatic events in the crypto industry, including the Terra ecosystem crash last month, the liquidity crisis of crypto lending platform Celsius, and the insolvency of Three Arrows Capital.

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Morch specifically suggested that MAS’ comments about brutality make much more sense when you consider that Three Arrows Capital, also known as 3AC, is a Singaporean firm. “If half of the rumors about how the fund manages the capital of its clients are true, it is not surprising that the financial authorities of Singapore see the need for increased regulation in this area,” he added.