After Bitcoin Plunge, Central Banks Alert Cryptocurrency Financial Risks

On May 19, the crypto market saw a deep drop comparable to “312”.

After Bitcoin Plunge, Central Banks Alert Cryptocurrency Financial Risks

On May 19, the crypto market saw a deep drop comparable to “312”. Bitcoin hit $30,000 per coin intraday for the first time since Feb. 8. Negative news over the past week has dampened Bitcoin’s popularity. After this deep correction, several central banks and regulators have issued articles talking about the crypto market.

China Payment and Clearing Association, China Banking Association and Mutual Fund Association issued a joint announcement
In fact, the day before this crypto downfall, on the 18th, China Payment Clearing Association, China Banking Association and Mutual Fund Association made a joint announcement to clarify that financial institutions and payment institutions are not allowed to carry out business related to virtual currencies.

On the 19th, a number of asset management companies began to warn about investing in cryptocurrencies, including UBS, Pacific Investments (Pimco), T. RowePrice and Glenmede Investment Management. Among them is UBS, which said, “We expect stricter policies and regulatory controls going forward as cryptocurrencies become mainstream.” Nicholas Johnson, a portfolio manager at Pacific Investment Management, on the other hand, questioned the use of bitcoin as a hedge against inflation. robSharps, president and head of investments at T.RowePrice, said, “Cryptocurrencies have an impact on capital markets as a whole, and we are capital market experts. Ultimately, the mandates we manage for our clients are not well suited to investing in cryptocurrencies, and we recognize the highly speculative nature of this space.

U.S. Treasury Tightens Cryptocurrency Tax Regulation
The U.S. Treasury Department will tighten tax regulations on cryptocurrency markets and transactions, saying it will require single cryptocurrency transactions of $10,000 or more in equivalent value to be reported to the IRS, which is seen as an important part of the Biden administration’s proposal to strengthen tax compliance.

The U.S. Treasury Department said in a press release on its website that monitoring cryptocurrencies has become an important issue that facilitates many illegal activities, including tax evasion, and that is why the president will provide additional resources to the IRS to address the growth of crypto assets. Under the new financial account reporting system, cryptocurrencies, crypto asset exchange accounts, and accounts of payment services that accept cryptocurrencies will be included. As with cash transactions, this reporting system will apply to businesses that receive more than $10,000 in fair value in cryptocurrency.

The U.S. Treasury says full reporting is necessary to minimize the incentive and opportunity to shift income away from the new information reporting system, although cryptocurrencies represent only a small portion of current business transactions. The IRS added a line about cryptocurrencies to the individual tax return 1040 in 2020 to get more information about virtual currency transactions.

SEC Chairman Says Regulators Should Be Ready to Prosecute Bad Actors in Crypto and Other Areas
It is worth noting that in the face of volatility in the crypto market. Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), said Thursday that federal financial regulators should be “prepared to prosecute” bad actors in the field of crypto and other emerging technologies.

In previous news, Gary Gensler said earlier today that crypto exchanges need more regulation and that the public would benefit from more SEC protection for investors on crypto exchanges.

Several central banks hint at risks of investing in cryptocurrencies
The Bank of Canada said Thursday that price volatility is preventing cryptocurrencies from becoming a widely accepted form of payment, even though the rapid growth of the crypto market is a new vulnerability in Canada’s financial system. The central bank said it is monitoring the crypto asset market. The popularity of crypto asset markets has risen sharply in the last year as consumers have gained easier access to them through ETFs, publicly traded companies and other investment vehicles.

The central bank said in its annual review of Canada’s financial system that despite the growing interest, crypto assets like bitcoin and other cryptocurrencies remain highly risky because of the difficulty of determining their intrinsic value. The Bank of Canada added that while the crypto asset market is not currently “systemically important” in Canada, that could change if a major tech company issues a cryptocurrency that is widely accepted as a digital payment method.

Norway’s central bank warned that large price swings in cryptocurrency assets could spell trouble for the banking system if banks continue to increase their crypto investments. Torbjorn Haegeland, executive director of Norway’s financial stability unit, said in an interview Thursday, “We do not see these fluctuations in cryptocurrencies as a major threat to financial stability at the moment, but they could pose a threat if exposures continue to increase.”

Luis deGuindos, deputy president of the European Central Bank, argued that Bitcoin is an asset with a very fragile foundation. Crypto assets should not be classified as a “real investment” because of the difficulty in identifying their potential value, and investors should be prepared for more price volatility. When you have trouble figuring out what the true basis of the investment is, then what you’re doing is not a true investment,” he said.

Argentina, a country representative of high currency turmoil and sovereign debt defaults, has joined others in warning nationals of the risks of investing in cryptocurrencies. Argentina’s central bank and securities regulator issued a joint statement on Thursday warning people to be cautious about investing in cryptocurrencies. The statement said that investing in cryptocurrencies “could cause significant financial losses to the holder, including the possibility of losing the entire principal amount invested. The statement also noted that despite the risks, cryptocurrency trading has not yet reached a level of widespread use and acceptance in Argentina.

In addition, on May 21, Federal Reserve Chairman Jerome Powell, highlighting the rapid development of financial technology and the potential benefits involved, said that cryptocurrencies, stablecoins and other innovations “could pose potential risks to users and the financial system as a whole. Powell said that as technology advances, attention must be paid to the appropriate regulatory framework, which includes a focus on private sector payments innovators that are currently outside of the traditional regulatory arrangements that apply to banks, investment firms and other financial intermediaries. In addition, Powell said the Federal Reserve wants to ensure that central bank digital currencies are all for the benefit of consumers and businesses, noting, “So far, the fluctuating value of cryptocurrencies has not made them a convenient way to pay, given other factors.

Posted by:CoinYuppie,Reprinted with attribution to:
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