BCRA and CNV Warn about Risks and Implications of Crypto Assets

Crypto assets imply risks and challenges for users, investors, and the financial system as a whole. Over the last few years, the proliferation of crypto assets, as well as their price dynamics and underlying technology, global scope, and trading have led national and international organizations to make recommendations on the matter.

Within this framework, the BCRA and the National Securities Commission (Comisión Nacional de Valores, CNV) provide information on, and warn users about, the potential risks and implications of crypto assets. They also urge caution to mitigate a potential source of vulnerability for users and investors. Even though crypto assets do not currently show significant levels of acceptance and use in Argentina, the speed at which they are being developed and the growing interest in them call for a precautionary attitude.

Crypto assets can be defined as a digital representation of value or rights. They are transferred or stored electronically by using DLT or any other comparable technologies, which offer higher efficiency and brings about financial innovation. However, crypto assets are not legal tender. Anyone interested in trading with crypto assets or investing in related products should have sufficient information to understand and assess associated risks, especially focusing on the following aspects:

• Not legal tender. Crypto assets are meant to be used as payment or investment instruments. Nonetheless, they are not issued or backed by a central bank or government authority. Neither do they meet the necessary conditions to be deemed legal tender or negotiable instruments. Consequently, their acceptance as a means of payment is not mandatory.

• High volatility. Crypto asset prices may fluctuate significantly in short periods of time, which may cause substantial, and even full losses, for holders, including all the resources invested. Even stablecoins, which are designed to keep their value against an asset or basket of assets, generally show high price volatility, and the level of fiat currency they are backed by are also variable. In addition, the value of crypto assets depends on their acceptance level, so it can be affected by global adverse events.

• Operational disruptions and cyberattacks. Exchange, trade, and custody platforms of crypto assets may face operational disruption of access to holdings caused by system failures, among other reasons. Therefore, trade may be unavailable for users, entailing potential economic losses. Such platforms may be targeted by cyberattacks, causing the loss or theft of users’ passwords, which may trigger the loss of crypto assets as well as the total amount invested with no chance of recovery.

• Lack of safeguard. The balances in crypto asset wallets are neither covered by deposit insurance nor current regulations for financial service users. At present, there is no regulation on banking or investment services in Argentina that may safeguard users’ investments in crypto assets or tokens.

• Fraud, incomplete information, and lack of transparency. Service providers’ information about the exposure of crypto assets to risks may be complex, incomplete, or insufficient. Unlike regulated stock markets, the price formation process of crypto assets does not have effective mechanisms to avoid manipulation. In many cases, price formation is not backed by public information. Indeed, any personal data that crypto asset users transfer in good faith to their providers may be exposed to scammers.

• Risk of money laundering and terrorist financing, as well as potential breach of forex regulations. Given the easy access to crypto assets, along with the global scope, and limited chance of monitoring and analyzing this kind of transactions—traceability becoming hardly possible due to the underlying technology—, users should be warned about the potential risks of breaching forex regulations as well as international regulations on the prevention of money laundering and terrorist financing.

• Cross-border transactions. In some cases, the parties involved in crypto asset transactions are not located in Argentina, so local courts and authorities may not have jurisdiction in the event of a conflict, thereby increasing litigation costs for users and investors. Within the framework of the BCRA’s and CNV’s powers, and the recommendations of specialized international organizations, information here is aimed at warning people in general about the risks of crypto assets.

May 20, 2021..

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