Canada: Bitcoin (BTC) still not very present has gained ground in 2021

The cryptocurrency market is drinking the cup with a plummeting bitcoin (BTC). In 2021, Canada saw the number of bitcoin holders double, with an average investment of $500. The Bank of Canada publishes its report: between clichés and future regulations.

Bitcoin (BTC): a speculative investment according to the Bank of Canada

While cryptocurrency markets are growing rapidly, their expansion has outpaced global efforts to regulate them. The risk therefore increases for investors, even if the Bank of Canada considers that it has not yet become systemic. Indeed, they would not benefit from the same “levels of protection” as those offered for other asset classes. The considerable fluctuations in prices would make these assets unsuitable as a means of payment and therefore would be above all a speculative investment.

However, cryptocurrencies are becoming more and more integrated into the traditional financial system, which would increase collateral risks. The number of bitcoin (BTC) holders is growing in Canada, but they would generally underestimate the risks associated with it.

Regulate the stablecoins

Stablecoins have 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 was demonstrated recently by the sudden collapse of some stablecoins. Federal and provincial authorities are working to develop an integrated regulatory framework for stablecoins, but it remains a work in progress. (Note that Japan is the first country to regulate these corners).

Canada cryptocurrency market

Cryptocurrencies: a drop of water on a global scale

Cryptocurrency markets have grown rapidly in recent years, but represent only a drop in the ocean of the global financial market (1% according to the FSB, Financial Stability Board). The market capitalization of cryptocurrencies (including stablecoins) has increased from approximately 200 billion US dollars in early 2020 to a high of nearly US$3 trillion in November 2021. At the beginning of June 2022, the market capitalization was close to 1200 billion US dollars.

A speculative tool rather than a means of payment

In 2021, approximately 13% of Canadians owned bitcoin (BTC), up from 5% in 2020. They used bitcoin (BTC) to speculate with an average of $500. The volatility of cryptos is the main reason for its non-adoption as a means of payment. As an example, bitcoin (BTC) and ether (ETH) prices have generally been four to five times more volatile throughout 2021 than the S&P 500 stock index. very high risk for investors.

Cryptocurrency market and traditional finance

The Bank of Canada believes that the connections between the two markets are limited. Indeed, the major liquidation of the cryptocurrency markets in May 2022 had no consequences for the traditional financial system in Canada and abroad.

Regulations

Also according to the Bank of Canada, regulation seems increasingly inevitable and necessary. Investors are more subject to the risk of financial loss (fraud, cyberattacks or 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, named CBDC. This digital currency has nothing to do with a decentralized cryptocurrency. Other states are also thinking about it in order to counter cash and cryptocurrencies such as Europe (digital Euro), Jamaica (Jam-Dex) or China (digital Yuan).

With the bull market of 2021, it is no wonder that Canadian investors, like others around the world, have invested in cryptocurrencies. In 2022, the shower is cold, freezing even, for first-time investors who see their investment melting at high speed. It remains to be seen what they will do: to sell or not to sell, that is the question.

Source: Bank of Canada.

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Mary Batshwok avatar

Mary Batshwok

Subprimes, financial crises, galloping inflation, tax havens… Bitcoin was designed for more transparency and perhaps finally change the situation. I try to understand this new environment and try to explain it myself. The road is undoubtedly long, but it is worth it.

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