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19th Jan 2019

Bitcoin poses 'limited' threat to EU finances

  • The value of bitcoin is more than 20 times what it was a year ago (Photo: Marc van der Chijs)

On Tuesday (12 December), traders were paying around $17,000 (€14,440) for a single bitcoin - more than 20 times its price a year ago.

The virtual currency has received renewed interest since late November, when it passed the €10,000 mark for the first time in its eight-year history.

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  • MEP Antanas Guoga: 'My advice is to wait and see, observe, and then regulate' (Photo: European Parliament)

This has led Ewald Nowotny, a member of the European Central Bank's (ECB) governing council, to say on Monday that because of the scale, "it is certainly increasingly necessary to discuss whether and in what form regulations are needed here".

Some go further. Nobel prize winner Joseph Stiglitz said two weeks ago bitcoin "ought to be outlawed", and that it was only popular because it could be used to circumvent oversight.

But there is not much appetite in Brussels to ban trading in the decentralised cryptocurrency, as China did earlier this year.

"It's just not possible to ban it," Lithuanian MEP Antanas Guoga told EUobserver in an interview.

"China banned it, but the people still use it. You have VPNs. People get around any ban."

Virtual private networks (VPNs) are connections which allow their users to mask their internet use.

Guoga himself has bought bitcoins in the past "to test it out", and he called on his fellow MEPs to do the same to know what they were talking about. He has since sold them all.

"I'm not actively speculating myself," he said. "It's been a good year. So I'm happy to be out."

The centre-right Lithuanian used to be a member of the liberal group, but joined the largest parliament family, the European People's Party in October 2016.

Blockchain vs bitcoin

He said a clear distinction should be made between cryptocurrencies, like bitcoin, and the underlying technology called blockchain.

Blockchain allows its users to record data in a decentralised and distributed way, and is sometimes called distributed ledger technology (DLT).

"We should not mix things up between speculation and cryptocurrency, which … has very little fundamental value, and blockchain technology," said Guoga.

"I'm a big fan of blockchain. I wouldn't say cryptocurrencies, but of blockchain I'm a very big fan," he added.

The blockchain technology could bring many benefits, he said, and replace old ways of doing things.

As an example, Guoga could see people's wills or testaments go on a blockchain. The advantage would be that a copy will also be saved, and changes can be tracked.

"It's obviously is a threat to government, because the more you have these sort of technologies like blockchain, it does take a lot of government functions away," he said.

The Lithuanian therefore believes that it is too early to start regulating blockchain, or even cryptocurrencies like bitcoin.

"My advice is to wait and see, observe, and then regulate," he said.

"The best regulation is just [the] warning that you could lose your money."

Value 'could drop to zero'

Mostly, that is what the EU has done.

Four years ago to the day on Tuesday, the London-based European Banking Authority (EBA) warned Europeans they should be aware of the risks associated with cryptocurrencies "including losing your money".

"The value of your virtual currency can change quickly, and could even drop to zero," the EBA warned.

The EU agency warned not to buy bitcoins with money "that you cannot afford to lose".

The possible risks were highlighted last Thursday, when Slovenian cryptocurrency marketplace NiceHash was hacked. Reuters reported that almost a million bitcoins had been stolen.

The hack followed a similar warning from Finland's Financial Supervisory Authority.

It said that cryptocurrencies were not primarily used as a means to purchase products, but as speculative investments.

"There is no solid foundation to their value formation," the authority said about cryptocurrencies.

"Moreover, no-one pays a real return, such as a dividend or interest, on bitcoin. The expected return is based solely on the expectation that someone will purchase the investment later at a higher price."

The Finns also noted that there is a risk that cryptocurrencies, which allow for anonymity, are used for illegal activities.

Money laundering

This concern is also the main angle which the European Commission has so far focussed upon when it comes to cryptocurrencies.

A 2016 commission proposal to update anti-money laundering rules, which still needs approval by the European Parliament and EU national governments, would require virtual currencies traders to be licensed or registered.

When this website asked the commission to comment on the request for new regulation on bitcoin, it referred to statements made two weeks ago by Valdis Dombrovskis, commissioner for the euro.

"From regulatory point of view, as you know, we do not treat bitcoin as a currency - there is only one currency in the eurozone that is the euro," Dombrovskis told Bloomberg.

"So, it is rather to be treated like a commodity where the price is determined by demand and supply and we are not commenting the price movements here."

Dombrovskis talking to Bloomberg reporters

The former Latvian prime minister noted that the commission saw bitcoin "still as a relatively limited phenomenon".

The European Securities and Markets Authority (ESMA) told this website it did not want to make any comment about bitcoin.

ESMA did confirm that its position on distributed ledgers technologies (DLTs) – or blockchain – had not changed, since a February report came out.

That ESMA report said that DLTs "could bring a number of benefits to securities markets", but that it was "premature to fully appreciate the changes that the technology could bring and the regulatory response that may be needed".

Nevertheless, the bitcoin craze - or bubble - can also have some positive side-effects for government authorities.

The international Southeast European Law Enforcement Center reported last May that Bulgarian authorities seized 213,519 bitcoins, worth $500m at the time.

Cryptocurrency news website Coindesk calculated last week that the seized assets have since risen in value to up to $3bn.

Digital currency, the Airbnb and Uber killer

The digital currency Ethereum allows people to run so-called smart contracts, potentially creating a decentralised sharing economy, and could be the beginning of the end for firms like Uber and Airbnb.

Focus

Estonia tests water for own virtual currency

Following the success of cryptocurrencies, such as Bitcoin, some in the Baltic nation propose introducing their own version for their e-residents. But what about the euro?

EU bleeding untold billions to fraud

Over €6bn of EU taxpayers' money was stolen by criminals in recent years and over €130m is still being lost each year, EU auditors said.

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