• The Bank of Canada believes that cryptocurrency should be regulated before it becomes too large

  • The recent cryptocurrency price drop has frightened worldwide authorities about the vulnerability in various projects, such as Terra’s ecosystem. In the context of regulatory overhauls aimed at the business, the Central Bank of Canada has also expressed the importance of adopting such restrictions before the sector grows so large that it threatens to bring down the whole financial market at some point.

    Urgency of Regulation

    Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, told Reuters that regulating the industry has grown more important as more people have invested in the asset class.

    She was concerned that, as the business continues to expand rapidly, attracting new investors who may not comprehend the risks involved, a sudden price drop will eventually have a spillover effect on the larger financial system.

    “This is an area that is still small, but it’s growing really rapidly. We don’t want to wait until it gets a lot larger before we bring regulatory controls in place.”

    The Deputy Governor described the sector as a “mostly unregulated area” where investors sought “quick returns” with little information. According to a recent bank survey, 13 percent of Canadians will possess Bitcoin in 2021, up from 5 percent the previous year.

    Despite the importance of enacting suitable legislation, she highlighted the challenges of categorizing and supervising the asset class within the present regulatory framework.

    “Bitcoin Is Not a Hedge”

    The Bank of Canada, like most central banks throughout the world, is wary about cryptocurrencies. When asked by Liberal MP Yvan Baker if Bitcoin can help Canadians avoid decades of high inflation, Rogers responded that the bank does not see it as a solution to inflation or a “reliable source of value.” She did, however, acknowledge that some “significant advancements” occurred in the crypto field.

    Despite its somewhat neutral stance on cryptocurrencies, the bank is already in the planning stages for a potential CBDC. In March, it launched a one-year research collaboration with MIT to investigate the potential design of a CBDC and how such a product would interact with the financial system.

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