Virtual currencies are on the rise. This universe is risky and immature. This is the warning from Philippe Carpentier, Deputy Director of the Crédit Agricole d’Ile-de-France in this forum.
For the past ten years, cryptocurrencies like Bitcoin, Ethereum, Ripple and others have given us spectacular financial returns, the threats and losses of which I believe are underestimated. These crypto assets are poorly regulated and currently have almost 1,600 virtual “currencies” and, since 2016, dozens of fundraising campaigns via digital tokens, ICOs or initial coin offers.
Bitcoin accounts for 0.2% of transactions in the euro area
I see that these new « currencies » regularly saturate the media space, but the same cannot be said of their presence in the real economy. Bitcoin only accounts for 0.2% of transactions within the euro zone. With Visa and Mastercard doing nearly 200,000 transactions per minute, Bitcoin only operates 80.
As bankers, it is our duty to address the lack of information related to these investments
I would like to point out that the potential for loss of these crypto assets is inversely proportional to their use. As bankers, it is our responsibility to address the information gap related to these investments. When the price of Bitcoin was close to US $ 20,000 on December 16, 2017, many of us could say: Why not bet on this virtual currency, which is available worldwide without legal control and is being used for new Internet purposes? Why not.
Everyone can invest freely. However, I would like to continue to urge clients to be extremely vigilant as it is the same arguments that make these investments so risky. Crypto assets are operated with very short-term financial incentives. Without centralized control, virtual currencies are not legal tender, unlike official currencies with exchange rates between countries and central banks.
Cryptocurrencies are synonymous with high volatility. ICOs do not protect stock market investors in the event of hacking or bankruptcy of intermediate platforms. One point that I also think is important, cryptocurrencies are indeed synonymous with great volatility: about twenty-five times higher than the American stock market, twelve times higher than the yen, and five times stronger than that made from raw materials.
20% of crypto buyers worldwide would go into debt to fund their investments
In 2018, they experienced another crash. As the financiers of the Autorité des Marchés remind us, Bitcoin « is based on an unregulated market […] that operates in an IT environment that has its own rules and can prove unsuitable for people with insufficient technical knowledge. [ …] Because of its high volatility, this market is risky. ”This risk is all the greater since, according to Morgan Stanley Bank, 20% of crypto buyers worldwide would go into debt to finance their investments!
Regarding ICO fundraising, it is my job to draw attention to the fact that platforms that act as intermediaries between investors and token issuers are exposed to an increasing number of cases of fraud, forgery of private keys and other malware. Between 2011 and 2018, Morgan Stanley recorded 19 serious incidents with an estimated loss of $ 1.2 billion. Often times, crypto-asset owners have no recourse during such hacks. 10% of the ICO funds have disappeared or been stolen.
ICOs do not offer any guarantees to subscribers
I continue my tour of this new universe with another important topic: ensuring safe operations. How can rights enshrined in national legislation be applied to intangible assets that are circulating at high speed on the internet? Again, ICOs do not offer a guarantee for subscribers. Between 2016 and early 2018, the E&Y company estimates that of the $ 3.7 billion raised through such operations, $ 400 million was either disappeared or stolen. In addition, many ICO platforms operate without approval or control. They are sometimes run by a private individual and at best confront savers with the risk of negligence or amateurism, at worst with downright fraud.
Libra, this virtual currency in the hands of a private company, ultimately wants to compete with fiat currencies
The greatest caution is therefore advisable. With the growth of these cryptocurrencies and the arrival of digital players stepping into the breach, institutions are starting to react. Recently, Facebook’s Libra has been rightly causing an outcry. This virtual currency in the hands of a private company ultimately wants to compete with fiat currencies. At the beginning of November 2019, the Minister for Economic Affairs and Finance, Bruno Le Maire, was concerned about these new projects: « We are not seeing what legitimizes the entry of the digital giants into a field of responsibility that is that of the states. » The initiative, announced with great fanfare, seems less convincing than in its early days. The main partners, Visa, Mastercard, Booking and, more recently, PayPal – to name just a few – have withdrawn from the project.
It is more difficult to find a place without the approval of the relevant regulatory authorities. And earn customers’ trust. More broadly, the authorities have been looking into this issue, which affects people’s financial confidence and wealth. In France, the PACTE law passed in 2019 created a framework for raising funds through the issuance of tokens and for the purchase of such securities (through digital asset service providers).
A blacklist of unauthorized platforms
At the same time, the Autorité des Marchés-Finanziers keeps a black list of unauthorized platforms. Without a visa, they can no longer address the general public. For French stock market investors this is a first protection, but to a small extent. With virtual currencies, however, everything remains at the risk and risk of the customer.
For this reason, we at Crédit Agricole d’Ile de France decided to set up a warning procedure to inform customers who would like to be tempted by the adventure of cryptocurrencies. Because I insist, our job is to inform – not suppress. Regardless, I recommend extreme caution when investing in crypto so as not to expose yourself to the game of « wanting more to lose more ».