Bitcoin is still a gamble to Canada’s central bank chief, but he looks to coordinate efforts with global regulators to form policies and develop rules around the digital coins.
Bank of Canada Governor Stephen Poloz told CNBC on Thursday that currencies must act as a reliable store of value and should be able to be easily spent.
“They are crypto but they are not currencies,” Poloz said in an interview at The Sanctuary in Davos.
Poloz acknowledged demand for crypto assets could grow over time and policy makers are studying whether a case could be made for central banks to provide it. However, he did not delve into specifics of the kind of collaboration or policies that the BoC is pushing for.
”I’m not really sure what they are. They are not assets really … I suppose they are securities technically … There is no intrinsic value for something like bitcoin so it’s not really an asset one can analyze. It’s just essentially speculative or gambling.”
Poloz added the Canadian regulator’s experiments with blockchain technology suggest it doesn’t have “substantial advantages” over the current technology for payment systems.
This increase in regulatory efforts should help protect Canadian consumers from exploitation inspiring a more trustworthy ecosystem. On the other hand, this can restrain innovation. But most importantly, it also mean ventures and investors must proceed more cautiously on what kinds of crypto activities they perform or participate in.
”One parallel we could draw would be the tech wreck. When we had the tech wreck, that was a much more widespread exposure. And the fact it had barely had perceptible effect on the real economy because it was not a stock market crash but just a segment of the stock market. But it was highly speculative, there was all kinds of bubbles there,” Poloz explained.
The central bank’s boss reiterated the concerns conveyed in the earlier warnings that came in the wake of significant spurt in the valuation of bitcoin and rapid growth in related fundraisers, or Initial Coin Offerings (ICOs). He highlighted the potential economic, financial, legal, customer protection and security related risks associated with such unregulated tender, adding he hopes the system will treat bitcoin cautiously.
Canada is seen as a ripe ground for blockchain technology applications, including cryptocurrencies, partially due to its tech-savvy population. The subcontinent is also ripe for an institutional-level adoption as the country’s investors may soon get access to the burgeoning market through exchange-listed products that track the price performance of bitcoin.
Crypto regulations in Canada
In the last few months, several providers of listed products have filed preliminary prospectus with provincial authorities for the launch of an actively managed bitcoin ETF. During the process, the British Columbia Securities Commission (BCSC) has granted blockchain startup First Block Capital Inc. its official registration as an investment fund manager, which allows the firm to operate a Bitcoin investment fund.
The race to roll out crypto derivatives was heightened by the launch of bitcoin futures in the U.S. earlier this month. This approach, which essentially taps into the futures market rather than risks associated with bitcoin’s underlying markets, would help ease retail investors’ exposure, which remains a regulatory nightmare for many jurisdictions.
Nevertheless, the anticipated regulatory approvals will adopt a cautious approach where they could allow bitcoin derivatives to work under the current regulatory framework while providing the regulators with unique mechanisms to monitor the operations closely.
The Canadian Securities Administrators (CSA), comprised of the country’s thirteen key financial market regulators across their respective provinces, has also publicized plans to regulate digital token sales.
The CSA stated that this new fundraising phenomenon should be categorised as securities, at least in some cases. This implies that certain ICOs/ITOs would now need to follow Canadian securities laws, which requires assessing the economic realities of the offering to protect participating investors.