In recent months, the regulators of the financial markets and central banks have issued multiple warnings against the risks associated with virtual currencies. On Monday 12 February, it was the turn of the three European financial supervisory authorities (ESA): ESMA, EBA and EIOPA, which supervise the financial markets and the banking and insurance sectors respectively, to sound the alarm.
They consider that virtual currencies, like Bitcoin, Ripple and Ether, have been extremely unstable recently and have shown “clear signs of a pricing bubble”.
In particular, their joint press release stresses that the value of Bitcoin rose sharply in 2017, rising from around €1,000 in January to more than €16,000 by mid-December, before dropping to €5,000 in early February 2018, and is currently trading in the region of €7,000. They estimate that the current total market capitalisation of the hundred largest virtual currencies is in excess of the equivalent of €330 billion globally.
Apart from the extreme volatility of prices and the risk of a pricing bubble, the authorities stress the lack of get-out options by exchanging for conventional currency, the lack of pricing transparency and misleading information provided to consumers.
They go on to warn that these currencies are not regulated by European legislation. Basically, this means that consumers have no guarantees or protection covering any losses in the event of breakdown, bankruptcy, cyber-attack, embezzlement or confiscation of assets following law-enforcement measures – all risks that have materialised on many occasions across the world, they stress.
Their advice to consumers, therefore, is as follows: be aware of the risks and, above all, “you should not invest money you cannot afford to lose”.
This new warning was immediately welcomed on Twitter by the European Commissioner for Financial Services, Valdis Dombrovskis. At the end of November, ESMA issued warnings about the risks associated with crypto-currency initial coin offerings (ICO) (see EUROPE 11903). More recently, the President of the European Central Bank, Mario Draghi, described Bitcoin as high-risk assets (see EUROPE 11955).
Even so, the European Commission does not seem to have made up its mind to legislate. In the action plan on financial technologies ('FinTech') it is to present at the beginning of March, it remains cautious on the issue and is not planning any additional action at the moment, apart from continuing to monitor developments closely (see EUROPE 11955). Furthermore, a little earlier this year, it launched a block chain observatory forum tasked with collecting information, monitoring and analysing trends in this new phenomenon (see EUROPE 11952).
For their part, France and Germany have announced that they will present joint recommendations for international regulation of Bitcoin ahead of the 'Finance' G20 of March (see EUROPE 11943). (Original version in French by Marion Fontana)