The cryptocurrency market is drinking the cup with plummeting bitcoin (BTC). In 2021, Canada doubled the number of bitcoin holders, with an average investment of $ 500. Bank of Canada publishes its report: both clichés and future regulations.
Bitcoin (BTC): speculative investment by Bank of Canada
While cryptocurrency markets are growing rapidly, their expansion has outpaced global efforts to control them. This increases the risk for investors, even if the Bank of Canada considers it not yet systemic. In fact, they would not benefit from the same “levels of protection” as those offered for other asset classes. Due to the significant fluctuations in prices, these assets would be unsuitable as a means of payment and above all speculative investment.
However, cryptocurrencies are becoming increasingly integrated into the traditional financial system, which would increase collateral risks. The number of bitcoin (BTC) holders is growing in Canada, but in general they would underestimate the risks involved.
Rule the stable tires
Stablecoins has emerged as a potential solution to price volatility in the crypto-asset market. They should be less volatile, but there is a lack of transparency and regulation in this area. This has been demonstrated recently by the sudden fall of some people stable tires. Federal and provincial authorities are working to develop an integrated regulatory framework for stable tires, but it is still a work in progress. (Note that Japan is the first country to control these corners).
Cryptocurrency: a drop of water on a global scale
Cryptocurrency markets have grown rapidly in recent years, but only reflect a fall in the ocean of the global financial market (1% according to the FSB, the Financial Stability Board). The market capitalization of cryptocurrencies (including stablecoins) has increased from approx 200 billion US dollars early 2020 high of almost US $ 3 trillion in November 2021. At the beginning of June 2022, the market capitalization was close 1200 billion US dollars.
A speculative tool rather than a payment method
In 2021, about 13% of Canadians owned bitcoin (BTC), up from 5% in 2020. They used bitcoin (BTC) to speculate on average $ 500. Crypto volatility is the main reason for its non-adoption as a payment method. For example, bitcoin (BTC) and ether (ETH) prices were generally four to five times more volatile during 2021 than the S&P 500 stock index. Very high risk for investors.
Cryptocurrency market and traditional finance
Bank of Canada believes the links between the two markets are limited. In fact, the massive liquidation of the cryptocurrency markets in May 2022 had no consequences for the traditional financial system in Canada and abroad.
According to the Bank of Canada too, regulation appears to be more inevitable and necessary. Investors are increasingly exposed to the risk of financial loss (fraud, or cyber-attacks exit scam of the exchange). Money laundering and terrorist financing through cryptos would also be an issue.
CBDCs to replace cryptocurrencies?
The Bank of Canada is working on a state digital currency, called CBDC. This digital currency has nothing to do with decentralized cryptocurrency. Other states are also considering it to combat cash and cryptocurrencies such as Europe (Digital Euro), Jamaica (Jam-Dex) or China (Digital Yuan).
With the bull market by 2021, it is no surprise that Canadian investors, like others around the world, have invested in cryptocurrencies. In 2022, the shower is cold, even frozen, for first – time investors who see their investment melting at a high pace. It remains to be seen what they will do: sell or not sell, that is the question.
Source: Bank of Canada.
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Subprime, financial crises, galloping inflation, tax havens … Bitcoin was designed for more transparency and possibly eventually changed the game. I try to understand this new environment and I try to explain it to myself. The road is long, no doubt, but it’s worth it.