Inevitable crypto regulations could be “brutal” for cryptocurrencies, Amundi has argued in its latest blue paper – Crypto-currencies: a bubble or the emergence of a new paradigm in decentralised finance?
According to the report from Europe’s largest asset manager, G7 regulators are determined to regulate the cryptocurrency (CC) ecosystem, leading to potentially severe price adjustments.
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However, such changes would be temporary, and CCs would likely flourish again once the regulatory environment is clear.
Authored by Aundi CIO, Pascal Blanqué, and deputy CIO, Vincent Mortier, the report recognises the growing popularity of cryptocurrencies which promise a more inclusive form of finance.
Indeed, demand for CCs now extends beyond retail investors, with increasing activity from institutional investors and investment funds. The report provides the case of Tesla, which, in early February this year, acquired $15bn bitcoins.
Blanqué and Mortier call for the introduction of an “appropriate regulatory framework” that will simultaneously capitalise on the development of CCs whilst ensuring the entire financial system is not put at risk.
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By GlobalDataYet there a several challenges surrounding the regulation of CCs. Using Bitcoin as an example, Blanqué and Mortier explain: “Bitcoin has no intrinsic return and there is no natural protection against capital loss, which raises the question of its fair value.”
According to the duo, CCs cannot be classified as money, because they do not posses the three qualities that have characterised money: a unit of account, a store of value and a medium of exchange.
“A more appropriate term” the report writes, “is crypto-assets”. However, unlike typical assets, such as stocks and bonds, cryptocurrencies have no real economic underlying asset and subsequently, there is no valuation model.
With the ability to identify motives for ownership, but lacking the ability to rank them, Blanqué and Mortier add: “It is not possible to estimate the potential demand for these assets unless assumptions are made about the precise role they will play in the future.”
Whilst regulation represents an exogenous risk factor for buyers, once the main risks are addressed, CCs will flourish once more.
The pair concluded: “Only once the regulatory environment has stabilized, and the relationship with central bank digital currencies has been clarified, will asset managers be able to recommend digital assets as safe investment vehicles.
“At the end of the day, investments in CCs may be promising, but they are still speculative in nature.”
