The Central Bank of Canada today issued a warning on cryptocurrencies, describing those assets as high-risk. And if you’re among the group of investors who bought Bitcoin as high as $63,000, that assessment might not come as a surprise.
Bank of Canada: Intrinsic value of Bitcoin, Ethereum is hard to establish
In its annual review of vulnerabilities and risks in the financial sector, the central bank said that while they are increasingly common, the intrinsic value of assets such as Bitcoin and Ethereum is difficult to determine.
The implication is that these assets are only good for speculation, and recent bearish events have further fueled such criticism. Bitcoin has lost more than half of its value from its peak when it dropped to $30,000 yesterday. But crypto believers say such withdrawals are not uncommon and may even be good for the market. Bitcoin is currently trading for around $40,000.
The bank included the crypto world in its vulnerability report as it was seen as a threat to the financial status quo in the country. The bank says cryptocurrencies receive significant media attention and the market capitalization of all assets have grown from $200 billion in early 2020 to over $2 trillion by May 2021.
Furthermore, the bank of Canada adds that, if a large technology company with a substantial user base decides to issue a cryptocurrency that is widely accepted as a means of payment, cryptocurrency can become an asset and a threat.
The bank was referring to stablecoins, cryptocurrencies designed for low volatility that is often pegged to fiat money like the US dollar or even gold. Such coins could harm banks if they are not pegged to the government-backed Canadian dollar, the report said.
Bank of Canada notes:
Notably, unless stablecoins are backed exclusively by the Canadian dollar, their widespread adoption could limit the Bank’s ability to conduct monetary policy and operate as a lender of last resort.”
Cryptocurrencies are very popular in Canada. The country beat the US in launching an exchange-traded fund (ETF) and currently has eight active funds in the country. An ETF is an investment product that allows people to buy shares that represent a certain asset. They are huge in the traditional finance world, and the Ethereum and Bitcoin ETFs that have kicked off in Canada is a sign that the cryptocurrency market is going mainstream.
But the Bank of Canada thinks otherwise:
“Despite their growing popularity, these markets have no systemic importance in Canada, not as an asset class or a payment instrument.”
The Bank of Canada previously addressed the threat of crypto assets to the banking system in its 2019 annual report, saying that they have the potential to create changes in the financial system. Bitcoin advocates will argue that such changes are precisely for good.
Source: AZCoin News