Cryptoassets imply risks and challenges for users, investors, and the financial system as a whole. Over the last few years, the proliferation of cryptoassets, 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 cryptoassets. They also urge caution to mitigate a potential source of vulnerability for users and investors. Even though cryptoassets 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.
Cryptoassets can be defined as a digital representation of value or rights that are transferred and stored electronically by using Distributed Ledger Technology (DLT) or any other comparable technology. Even though these technologies may contribute to promoting higher efficiency and financial innovation, cryptoassets are not legal tender.
Anyone interested in trading with cryptoassets or investing in related products should have sufficient information to understand and assess associated risks, especially focusing on the following aspects:
• Not legal tender. Cryptoassets 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. Cryptoasset 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 cryptoassets depends on their acceptance level, so it can be affected by global adverse events.
• Operational disruptions and cyberattacks. Exchange, trade, and custody platforms of cryptoassets 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 cryptoassets as well as the total amount invested with no chance of recovery.
• Lack of safeguard. The balances in cryptoasset 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 cryptoassets or tokens.
• Fraud, incomplete information, and lack of transparency. Services providers’ information provided about the exposure of cryptoassets to risks may be complex, incomplete, or insufficient. Unlike regulated stock markets, the price formation process of cryptoassets does not have effective mechanisms to avoid manipulation. In many cases, price formation is not backed by public information. Indeed, any personal data that cryptoasset 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 cryptoassets, 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 cryptoasset 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 cryptoassets.
