Pablo Hernandez de Cos, governor of the Bank of Spain, considers stablecoins even riskier, as they are correlated with the “real economy”.
- Hernandez de Cos said crypto is a risk for small investors
- He recalled that cryptocurrencies have lost 40% of their value this year
- The governor of the Bank of Spain also criticized the stablecoins.
The governor of the Bank of Spain, Pablo Hernandez de Cos, warned again this week of the risk of investing in cryptocurrencies due to the huge fluctuation of its value, e emphasized that in the first five months of this year this market has lost 40% of its value. “En términos generales, dada su volatilidad y complejidad, los criptoactivos no son apropiados para los inversores minoristas”, concluded during the closing ceremony of the Esade Business School.
Hernandez said he chose the topic because “young people with high incomes are the typical investors in Spain”.
He began his speech by giving an explanation on terms such as virtual currencies, tokens, stable coins, algorithmic stable coins, proof of stake, among others, in order to contextualize his listeners.
Likewise, Hernández De Cos warned that, in addition to being a risk for small investors, cryptocurrencies are also a risk for small investors. “are a risk to the financial system” because their fall is dragging down the traditional stock exchanges more and more every day. This is because “the interconnections of cryptocurrencies with the rest of the financial system have increased significantly.”
En Twitter, the Bank of Spain highlighted a sentence from Hernández’s speech in which he essentially repeats what he has said before that cryptocurrencies pose risks and that international regulation is necessary.
The Governor #bdeHdeCos participates in the closing lecture of the Speakers Series of the 2021-2022 academic year of the @ESADE MsC in Finance. Check here his speech ????https://t.co/WrHUB70UuY #bofSpeeches pic.twitter.com/fUPnuwr3V9
– Bank of Spain (@BancoDeEspana) May 31, 2022
The problem of stablecoins
According to the governor, the union of the crypto and stock market is growing, because of the rise of stable currencies, or stablecoins, since these link the value of a crypto to a real economy asset, such as the dollar, the euro, a treasury bond, precious metals.
He warned about the risk of contagion from the growing presence of cryptocurrencies in exchange-traded funds (ETFs) and mutual funds, as well as the increased acceptance of virtual currencies as a means of payment in large companies.
He added that part of the problem has to do with the misinformation of many. He said one of the risks is the “ limited understanding by investors of the real characteristics and implications”.
He cited a study by the Financial Conduct Authority (FCA) in the UK, in which 20% of respondents believed that these currencies had a protection similar to that of a bank deposit, something that is false. As explained by the media The Economist, in the euro zone, savings accounts are covered up to 100,000 euros in the event of a bank failure, and there are various mechanisms to prevent this situation from occurring, but if a cryptocurrency cryptocurrencies are digital currencies that use cryptographic technologies to secure their operation. loses its value the investor is helpless and no institution has the capacity to prevent the disaster.
Contagion for the stock market
The second problem the governor points out is the risk of contagion for the stock market. when the cryptocurrency one fails. “Wild swings in their prices can influence investor sentiment, causing them to overreact and eventually influence their behaviour in other markets.” expressed.
“These effects on stock exchanges may increase if the use of stablecoins becomes more widespread.” he added.
He also explained: “Total capitalization grew very sharply to peak at USD $3 trillion in November 2021, three times higher than the previous all-time high in 2017. The market an area or arena, online or offline, in which commercial dealings are conducted. is dominated by traditional cryptoassets; in fact, Bitcoin the biggest and most popular cryptocurrency in the world. It is a decentralized digital currency that enables users to make trustless peer-to-peer transactions. and Ethereum a decentralized open-source blockchain with smart contracts functionality. account an account is essentially a whose purpose is to track the financial activities of a specific asset/ for more than two-thirds of the total capitalization. In Spain, their transaction volume how much cryptocurrency has been traded over a set period, such as the past 24 hours. according to some estimates amounted to around €60 billion in 2021.”
And he pointed out:
“However, they are also much less mature than is generally believed. and yet, in aggregate terms, this market represents only about 1% of the global financial system. At the same time, we must not overlook the fact that this market is already bigger than the subprime mortgage market in the run-up to the global financial crisis. And the fact that trading volumes of some of the most representative asset classes (including Bitcoin, Ether the form of payment used in the operation of the distribution application platform, Ethereum. and Tether) were, at times, close refers to the closing price; similar to the same term used in stock trading. to those of the New York Stock Exchange businesses that allow customers to trade cryptocurrencies for fiat money or other cryptocurrencies. (between 70% and 95%)”.
Hernandez also criticized theFidelity, the country’s leading pension fund provider, which plans to introduce by the end of this year an option a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price. for companies to put cryptoassets into employee funds . In his opinion, this project “should be the subject of careful reflection before being widely implemented”.
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