Cryptocurrency rally sets off supervisors’ alarms

cryptocurrency rally sets off supervisors' alarms
cryptocurrency rally sets off supervisors' alarms

The bitcoin climbed yesterday at times above 48,000 dollars, boosted by Tesla’s decision to dedicate part of its liquidity to alternative assets and to know that it has invested 1,500 million dollars, about 1,250 million euros, in the cryptocurrency. A news that caused a vertical rise in its price and set off supervisors’ alarms due to the possibility of a bubble in this type of asset. The electric car manufacturer, founded by the histrionic businessman Elon Musk, also revealed that in the near future it will accept the currency as a means of payment.

The digital currency is experiencing a real boom and accumulates a rise of 845% since March of last year due to the arrival of liquidity from institutional investors and a market with little volume. For now, there are already some analysts who suggest that it will reach $ 50,000 and point to $ 100,000 as the next goal.

An escalation that has led the National Securities Market Commission (CNMV) and the Bank of Spain to jointly warn of the high volatility of cryptocurrencies, among which bitcoin and ether stand out, and of the significant increase in last months of “advertising, sometimes aggressive, to attract investors.”

The two supervisors influence the risk of this type of assets due to their “extreme volatility, complexity and lack of transparency, which makes them a high-risk bet not suitable for small investors.

Of course, the organizations chaired by Rodrigo Buenaventura and Pablo Hernández de Cos recognize that crypto assets, which include digital currencies and the technology that supports them, “can be elements that revitalize and modernize the financial system in the coming years”, although, they see it necessary to warn about the risks involved.

Thus, they remember that they are complex instruments that may not be suitable for small investors, who could lose their entire investment. Furthermore, they affirm that derivatives have been created on these assets, “which further increases their complexity and the possibility of suffering losses greater than the initial investment.” They warn that there is no legal framework that protects cryptocurrencies in the EU – it is still being negotiated – that gives guarantees and protection similar to those applied to financial products. In addition, they explain that digital currencies are not considered means of payment and that they are not covered by the Deposit Guarantee Fund (FGD) of each country.

The two supervisors add that there is no price formation mechanism that prevents their manipulation, that they can register liquidity problems, that their acceptance as a means of payment is “very limited” and that the risk of an eventual theft or loss of the wallet must be taken into account.

It is not the first time that both supervisors have warned about the extreme volatility of cryptocurrencies and the possibility of losing the entire investment. They already did so in 2018, at the height of the initial coin offering (ICO). So have other supervisors, such as the US SEC, which has ensured that cryptocurrency investors may be subject to manipulation and fraud. The ECB has reiterated that bitcoin is a “highly speculative” asset.

Currently, bitcoin has 60% of the cryptocurrency market, followed by ethereum, with a 15.5% share. Another of the cryptocurrencies that has had the most notoriety in the last week, dogecóin, only accounts for 0.5% of the market, according to Coinmarketcap. The latter, created as a mockery of bitcoin, has achieved recent relevance thanks also to Musk, who has managed to make it the tenth digital currency by capitalization through a meme.

A financial guru named Elon Musk

Satoshi Nakamoto. In 2017 it was even published that Elon Musk was behind the name of the founder of bitcoin. He denied it.

Signal. In December, in the heat of controversy over the privacy conditions of WhasApp, Musk tweeted encouraging the use of the Signal app, causing Signal Advance to skyrocket, which has nothing to do with a messaging application.

GameStop. In full frenzy of small investors grouped on Reddit, Musk tweeted “Gamestonk!”, A play on words between GameStop and stonk, a colloquial sense for stocks, linking to the Reddit page where he encouraged to buy shares of GameStop. Reddit, on the other hand, has closed a round of financing of 250 million dollars to make new investments.