布鲁盖尔-The-economic-potential-and-risks-of-crypto-assets_-is-a-regulatory-framework-needed__14页_589kb

Summary of "The economic potential and risks of crypto assets: is a regulatory framework needed?"

Core Content

This document explores the economic potential and risks of crypto assets, with a focus on their implications for the European Union (EU) and the need for a regulatory framework. It is a policy contribution prepared for the Austrian Presidency of the Council of the European Union, highlighting the challenges and opportunities presented by cryptocurrencies and initial coin offerings (ICOs).

Main Points and Key Information

1. Classification of Crypto Assets

• Crypto assets are broadly classified into:

  • Cryptocurrencies: A private means of payment, such as Bitcoin.
  • Initial Coin Offerings (ICOs): Typically used to fund new activities through promises of future utilities (utility tokens) or financial returns (securities tokens).
  • Service Providers: Including crypto exchanges and wallet providers, which facilitate trading and storage of crypto assets.

• Underlying Technology: Distributed ledger technology (DLT) and blockchain enable peer-to-peer (P2P) transactions without intermediaries, and provide secure, transparent record-keeping.

2. Market Valuation and Trends

• The market capitalisation of crypto assets peaked at over $800 billion in January 2018, but dropped to ~$200 billion by August 2018.
• Bitcoin dominates the cryptocurrency market, but its price volatility is a major concern.
• ICOs saw a sharp decline from ~$7 billion in March 2018 to ~$926 million by July 2018.
• Most ICO fundraising occurs through the Ethereum blockchain, with major contributors being Russia, the US, Switzerland, Singapore, and China.

3. Regulatory Challenges and Approaches

• Regulatory fragmentation exists across the EU, with different institutions classifying crypto assets in various ways.
  • Some treat them as units of account, others as financial instruments.
  • The ECB does not consider cryptocurrencies as money, citing their price volatility and lack of official recognition.
  • The German regulator (BaFin) classifies Bitcoin as a unit of account, similar to foreign exchange, but not legal tender.
  • The French regulator (AMF) does not consider virtual currencies as financial instruments.
• Crypto exchanges and wallet providers are increasingly subject to anti-money laundering (AML) regulations.
• There is a growing consensus that authorisation is necessary for crypto exchanges to operate.

4. Public Policy Questions

The document outlines six key regulatory and policy questions:

1. Economic Potential: Can crypto assets offer innovative financing solutions?
2. Combating Illegal Activity: How to prevent money laundering and terrorist financing using crypto assets?
3. Consumer and Investor Protection: How to ensure safety and transparency in a rapidly evolving market?
4. Financial Stability: Are there risks to the broader financial system from crypto assets?
5. Taxation: How should crypto assets be taxed?
6. Integration with Legal Framework: How to embed blockchain applications into existing laws?

5. Technological and Practical Limitations

• Decentralised record-keeping offers innovation but also poses challenges:
  • High energy consumption associated with transaction verification (e.g., Bitcoin's proof-of-work mechanism).
  • Data storage and internet bandwidth constraints as transaction volumes grow.
  • Transaction speed is too slow for real-time payment systems.
• The latest generation of crypto technology has moved towards more centralised systems (permissioned ledgers) to address these issues.
• Permissioned blockchains aim to combine the benefits of decentralisation with the efficiency of centralised systems, but risk concentration of power.

6. Regulatory Recommendations

• EU policymakers should:
  • Regulate crypto assets rather than isolate or integrate them.
  • Promote global cooperation through bodies like the G20 and Financial Stability Board (FSB) to set regulatory norms.
  • Consider standard-setting organisations like the International Organisation for Standardization (ISO) for guidance.
  • Move supervision from national to EU level when necessary, but also allow for experimentation due to the fast-changing nature of the technology.
• The European Commission is assessing whether the current regulatory framework is adequate for ICOs.
• The FSB concluded that there is currently no financial stability risk from crypto assets, but continuous monitoring is essential.

7. Conclusion

• Crypto assets, while promising, are still experimental and highly volatile.
• They raise significant regulatory and policy challenges, particularly in areas like money laundering, consumer protection, and financial stability.
• A balanced regulatory approach is needed to harness the benefits while mitigating risks.
• Global coordination is essential to ensure consistent standards and prevent regulatory arbitrage.

Key Figures and Data

• Bitcoin transactions: ~284,000 per day globally (ECB data).
• Market capitalisation of crypto assets: peaked at $836 billion in January 2018, fell to ~$207 billion by August 2018.
• Crypto exchange volumes: peaked at ~$50 billion in January 2018, fell to ~$19.1 billion by August 2018.
• ICOs funding: reached ~$7 billion in March 2018, dropped to ~$926 million in July 2018.
• Crypto exchange profits: Binance reported $300 million in H1 2018 and expected $500–1 billion in total for 2018.

References

• The document draws on data from coinmarketcap.com, localbitcoins.com, icowatchlist.com, and Bruegel.
• It references studies and reports from ECB, FSB, EBA, AMF, and BaFin.
• It also cites Digiconomist for energy consumption data and Abadi and Brunnermeier (2018) for insights on permissioned blockchains.