After the European Central Bank (ECB) and Christine Lagarde, the Banque de France, which likens the bitcoin phenomenon to “tulipomania”, it is the turn of the US Federal Reserve (Fed) to warn against cryptocurrencies. And to rely on this April’s high profile crash to justify its warning: “These events demonstrate the need for clear legal safeguards,” warned Lael brainard, the new vice president of the US central bank.
As cryptocurrencies gain prominence, crypto assets across various investor categories, including institutional funds, have suffered an unprecedented crash following an algorithmic move on a stablecoin. The market for these decentralized assets, on which the ECB has identified 16,000 cryptos, lost more than half of its value, falling from a $3 trillion valuation to $1.4 trillion — in just six months.
Ever since bitcoin still fails to climb the slope and cross a plateau, about $29,000 on Friday, down more than 25% in one month according to the Bitstamp site. Since the all-time high at $66,000, the decline is 57%.
Consequences in El Salvador
This unprecedented drop, while bitcoin has never fallen back to its starting value, has implications for some states that have — or will — legalize bitcoin as their official currency. In El Salvador, traders are still legally required to accept bitcoin as a payment currency, but now cryptocurrency is burning their fingers and most are rushing to exchange it for dollars, which is less risky.
Cryptocurrency tumble comes bad: Negotiations with IMF for $1.3 billion loan stall for El Salvador, whose public debt is about 90% of GDP. There, only 23% of the population has a bank account.
But President Bukele has announced that he is taking advantage of bitcoin’s decline to buy 500 of them, boosting the country’s cryptocurrency reserves, now at 2,301 bitcoins, each worth about $30,000.
The central authorities, who had warned of these risks, are therefore not stingy with criticism: “The measures we are taking now, whether it be the regulatory framework or a digital dollar, will have to be robust for the future evolution of the system.” Lael Brainard added.
Regulations are getting stricter… even in Portugal
The trend towards regulation is confirmed everywhere. Portugal plans to close the legal loophole that prevents the taxation of virtual assets and has made it particularly attractive to cryptocurrency investors, Portugal’s finance minister said on Thursday.
“The government plans to legislate on this, we are not going to maintain this vacuum,” Fernando Medina said during a meeting with the foreign press in Lisbon.
The government wants to present a new legal framework “as soon as possible” that will ensure that the balance between fiscal “fairness” and the country’s international “competitiveness” is maintained, the minister said.
Portugal is currently one of the few countries in Europe where cryptocurrency transactions are not “taxable” because they are not considered currencies or financial assets, according to a tax advice issued in 2016 and still in effect.
Prioritize the digital currencies of states
At the same time, Washington is considering the creation of a digital dollar. President Joe Biden in March asked the Treasury Department — equivalent to the Commerce and Treasury Department — to submit a report on “the future of the currency” to him within six months.
The Fed, which has been thinking about it for several years and published a report in January, the first stage of a public consultation, is in turn responsible for studying the stages to be put in place.
“No decision has been made whether a US central bank (CBDC) digital currency will be part of that future,” clarified Lael Brainard. And finally, “it is important that the United States plays a leading role in the development of standards for international digital financial transactions involving (central bank digital currencies)”.