Download publication

Policy Contribution

The economic potential and risks of crypto assets: is a regulatory framework needed?

What is the economic potential and the risks of crypto assets? Regulators and supervisors have taken great interest in these new markets. This Policy Contribution is a version of a paper written at the request of the Austrian Presidency of the Council of the European Union for the informal ECOFIN meeting of EU finance ministers and central bank governors.

By: and Date: September 6, 2018 Topic: Macroeconomic policy

This Policy Contribution is a version of a paper written at the request of the Austrian Presidency of the Council of the European Union for the informal ECOFIN meeting of EU finance ministers and central bank governors (September 2018).

 

We analyse and assess the economic potential and risk of crypto assets and discuss key regulatory questions that European Union policymakers need to confront. Crypto assets can be broadly classified as cryptocurrencies – a private means of payment – and initial coin offerings (ICOs), typically used to fund new activities against the promise of future utilities (utility tokens) or financial returns (securities tokens). Crypto exchanges and wallets provide services such as exchanging crypto assets into central bank currencies and brokerage services.

The underlying technologies – record keeping in distributed ledgers and blockchain – facilitate peer-to-peer interactions without intermediaries and are still experimental. They have been praised as offering benefits for many applications beyond finance, but there is also significant scepticism.

The crypto asset market has seen huge variation in its market valuation. After a peak of above $800 billion (January 2018), it fell to around US$200 billion (August 2018). Cryptocurrencies such as bitcoin have dropped markedly in value. The amount of funds raised through ICOs has also declined substantially since its March 2018 peak.

Regulators and supervisors have taken great interest in these new markets. Different regulators in Europe classify and treat cryptocurrencies differently. Some classify cryptocurrency as a unit of account while others reject it as a financial instrument. Several regulators take the view that case-by-case assessments of ICOs are necessary. There seems to be convergence on the view that crypto exchanges and wallet providers should require authorisation to operate.

Crypto assets raise six major public policy questions: how great is the potential of crypto assets in advanced financial systems? What is the best way to combat illegal activity such as money laundering and terrorism finance? How can consumer and investor protection be ensured? What about financial stability? How might crypto assets be taxed? And how can blockchain applications be embedded into the existing legal framework?

European policymakers must first decide whether crypto assets should be isolated, regulated or integrated. We argue that at this point regulation is the right approach. Second, global cooperation in the managing risks of the new technology should be ensured while reaping the opportunities it undoubtedly provides. The G20 and the Financial Stability Board should set regulatory norms that address the six policy questions. Standard-setting organisations such as the International Organisation for Standardization should also play a role. Third, EU policymakers need to agree on the right moment to move supervision of crypto assets from the national level to the EU level. In a single market for capital, diverging supervisory practices can come with significant downsides and this is particularly true for highly mobile crypto assets. However, different supervisory practices can allow experimentation with different approaches to a fast-changing technology.

Download the online annex.

Read about event
 

Past Event

Past Event

Three data realms: Managing the divergence between the EU, the US and China in the digital sphere

Major economies are addressing the challenges brought by digital trade in different ways, resulting in diverging regulatory regimes. How should we view these divergences and best deal with them?

Speakers: Susan Ariel Aaronson, Henry Gao, Esa Kaunistola and Niclas Poitiers Topic: Digital economy and innovation, Global economy and trade Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 19, 2022
Read about event More on this topic
 

Past Event

Past Event

Adapting to European technology regulation: A conversation with Brad Smith, President of Microsoft

Invitation-only event featuring Brad Smith, President and Vice Chair of Microsoft who will discuss regulating big tech in the context of Europe's digital transformation

Speakers: Maria Demertzis and Brad Smith Topic: Digital economy and innovation Location: Bibliothéque Solvay, Rue Belliard 137A, 1000 Bruxelles Date: May 18, 2022
Read article More on this topic More by this author
 

Opinion

Buy now, pay later: the age of digital credit

A relatively new fintech market, BNPL is currently not regulated in the EU, meaning that consumers do not have the same protection level as they do for other credit products.

By: Maria Demertzis Topic: Digital economy and innovation Date: May 17, 2022
Read about event More on this topic
 

Upcoming Event

May - Jun
31-1
10:30

MICROPROD Final Event

Final conference of the MICROPROD project

Speakers: Carlo Altomonte, Eric Bartelsman, Marta Bisztray, Italo Colantone, Maria Demertzis, Filippo di Mauro, Wolfhard Kaus, Steffen Müller, Gianluca Santoni, Verena Plümpe, Andrea Roventini, Valerie Smeets, Nicola Viegi, Markus Zimmermann and Javier Miranda Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic
 

Upcoming Event

Jun
7
10:30

Future of Work and Inclusive Growth Annual Conference

Annual Conference of the Future of Work and Inclusive Growth project

Speakers: Erik Brynjolfsson, Francis Green, Ivailo Kalfin, Laura Nurski, J. Scott Marcus, Anoush Margaryan, Julia Nania, Poon King Wang and Fabian Stephany Topic: Digital economy and innovation Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic
 

Blog Post

Insights for successful enforcement of Europe’s Digital Markets Act

The European Commission will enforce digital competition rules against big tech; internally, it should ensure a dedicated process and teams; externally, it should ensure cooperation with other jurisdictions and coherence with other digital policies.

By: Christophe Carugati and Catarina Martins Topic: Digital economy and innovation Date: May 11, 2022
Read about event More on this topic
 

Past Event

Past Event

COVID-19 and the shift to working from home: differences between the US and the EU

What changes has working from home brought on for workers and societies, and how can policy catch up?

Speakers: Jose Maria Barrero, Mamta Kapur, J. Scott Marcus and Laura Nurski Topic: Inclusive growth Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 28, 2022
Read article More on this topic
 

Blog Post

The decoupling of Russia: European vulnerabilities in the high-tech sector

Although Russia bears the brunt of Western high-tech sanctions, the European Union will face challenges in sectors where it relies on Russian and Ukrainian commodities and technologies.

By: Monika Grzegorczyk, J. Scott Marcus, Niclas Poitiers and Pauline Weil Topic: Global economy and trade Date: April 12, 2022
Read article More on this topic
 

Blog Post

The decoupling of Russia: high-tech goods and components

Sanctions on high-tech goods supplies, combined with financial sanctions and other restrictions, will deprive Russia of a future as a modern economy.

By: Monika Grzegorczyk, J. Scott Marcus, Niclas Poitiers and Pauline Weil Topic: Global economy and trade Date: March 28, 2022
Read article
 

Blog Post

The decoupling of Russia: software, media and online services

Restrictions so far on software, media and online services in Russia have been imposed either voluntarily by firms, or else by Russia itself in order to restrict the flow of information.

By: J. Scott Marcus, Niclas Poitiers and Pauline Weil Topic: Digital economy and innovation, Global economy and trade Date: March 22, 2022
Read about event More on this topic
 

Past Event

Past Event

Who will enforce the Digital Markets Act?

While the Digital Markets Act entered its first trilogue, what will be the enforcement role of the Commission and the Member States?

Speakers: Christophe Carugati, Cani Fernández, Assimakis Komninos and Georgios Petropoulos Topic: Digital economy and innovation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 22, 2022
Read about event More on this topic
 

Past Event

Past Event

Productivity in transformative times

This Microprod policy conference will discuss how productivity is affected by globalisation and digitisation.

Speakers: Carlo Altomonte, Ufuk Akcigit, Eric Bartelsman, Marta Bisztray, Erik Canton, Carol Corrado, Zsolt Darvas, Ronald Davies, Niklas Garnadt, Alexander Jaax, Filippo di Mauro, Marie Le Mouel, Niclas Poitiers, Giovanni Sgaravatti, Alessandro Turrini, Bart van Ark, Reinhilde Veugelers and Frederic Warzynski Topic: Digital economy and innovation Date: February 22, 2022
Load more posts