After the European Central Bank (ECB) and Christine Lagarde, Banque de France, comparing the bitcoin phenomenon to “tulipomania”, it is the turn of the US Federal Reserve (Fed) to warn against cryptocurrencies. And to rely on the striking crash this April to justify its warning: “These events demonstrate the need for clear regulatory safeguards,” Lael warned Brainard, the new Vice President of the US Federal Reserve.
While cryptocurrencies are gaining more and more fame, with different categories of investors, including institutional funds, cryptocurrencies have suffered an unprecedented crash following an algorithmic move on a stablecoin. The market for these decentralized assets, where the ECB has identified 16,000 cryptocurrencies, lost more than half of its value and dropped from a valuation of $ 3 trillion to $ 1.4 trillion – in just six months.
Since bitcoin still fails to climb the slope and cross a plateau, about $ 29,000 on Friday, a drop of more than 25% in a month, according to the Bitstamp website. Since the record of $ 66,000 has fallen 57%.
Consequences in El Salvador
This unprecedented decline, while bitcoin has never fallen back to its starting value, has implications for some states that have – or will – legalize bitcoin as an official currency. In El Salvador, merchants are still required by law to accept bitcoin as a payment currency, but now cryptocurrency is burning their fingers and most people are rushing to exchange it for dollars, which is less risky.
Cryptocurrency tumbling gets bad: Negotiations with IMF on $ 1.3 billion loan to El Salvador, whose government debt is about 90% of GDP. Only 23% of the population has a bank account.
But President Bukele has announced that he is taking advantage of the decline in bitcoin to buy 500 of those that have increased the country’s cryptocurrency reserves, now to 2,301 bitcoins, each of which is currently worth about $ 30,000.
The central authorities, who had warned of these risks, are therefore not stingy with criticism: “the measures we are taking now, whether in the regulatory framework or on a digital dollar, must be robust for the future development of the system. “financial”, added Lael Brainard.
Regulation is getting tougher … even in Portugal
The tendency for regulation is confirmed everywhere. Portugal intends to fill the legal loophole that prevents the taxation of virtual assets and has made it particularly attractive to cryptocurrency investors, the Portuguese finance minister said on Thursday.
“The government intends to legislate on this matter, we will not maintain this vacuum,” Fernando Medina stated during a meeting with the foreign press in Lisbon.
The government wants “as soon as possible” to present a new legal framework that ensures that the balance between fiscal “reasonableness” and the country’s international “competitiveness” is maintained, the minister added.
Portugal is currently one of the few countries in Europe where cryptocurrency transactions are not “taxable” because they are not considered currencies or financial assets, according to a statement from the tax administration in 2016 and is still valid.
Prioritize states’ digital currencies
At the same time, Washington is considering creating a digital dollar. President Joe Biden asked the Ministry of Finance – similar to the Ministry of Economy and Finance – in March to submit a report on the “future of the currency” within six months.
The Fed, which has been thinking about it for several years and published a report in January, the first phase of a public consultation, is in turn responsible for studying the stages that should be introduced.
“No decision has been made on whether a US Federal Reserve’s digital currency (CBDC) will be part of that future,” Lael Brainard clarified. And to conclude: “it is important that the US plays a leading role in the development of standards governing international digital financial transactions involving (central banks’ digital currencies)”.