Following a significant cryptocurrency purchase, the central bank of Canada declares cryptocurrencies such as Bitcoin (BTC) to be an extremely dangerous asset, amid widespread acceptance by institutional investors. Bank of Canada Considered Cryptocurrency To Be Extremely Risky The Bank of Canada released its annual financial system analysis on Thursday, highlighting the most significant financial risks and economic weaknesses. The central bank paid special attention to cryptocurrencies as part of the study, noting that crypto uncertainty is an emerging drawback in Canada’s financial system: “Price instability caused by speculative demand remains a significant impediment to the widespread adoption of crypto assets as a means of payment. Despite the institutional interest in crypto assets, they are still regarded as high risk due to the difficulty in determining their intrinsic value.” The alert comes just days after the crypto market experienced one of its most violent crashes in history, wiping out nearly $1 trillion in market value in a matter of days. Following a surge of over $64,000 last month, Bitcoin experienced a major sell-off, plummeting to nearly $30,000 on Wednesday, marking yet another milestone of unprecedented volatility in crypto markets. What Else Is the Canadian Bank Concerned About? The Canadian central bank is concerned with more than just volatility. The central bank also warned about the risks of stablecoins, a form of cryptocurrency that is usually backed by assets such as national currencies or conventional financial assets to avoid volatility. According to the bank, stable coins, lower volatility can make them more suitable for use as a means of payment and a store of value. “However, stablecoins continue to carry some of the same risks as other crypto assets. Notably, unless stablecoins are solely backed by Canadian dollars, widespread adoption can impede the Bank’s ability to enforce monetary policy and function as lender of last resort,” the bank said. The Bank of Canada stated that cryptocurrencies such as Bitcoin have grown exponentially over the last year, with the crypto market capitalization exceeding $2 trillion in May 2021, up from $200 billion in early 2020. The authority also stated that the introduction of closed-end funds and exchange-traded funds has made cryptocurrency more available to Canadian investors. Canada is one of the world’s first jurisdictions to allow a Bitcoin ETF. In April, 3iQ, a Canadian investment fund manager, announced the launch of a Bitcoin ETF in collaboration with CoinShares, a major European digital asset manager.
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