Regulations could be brutal for cryptocurrencies, speculates Amundi

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nevitable crypto regulations could be “brutal” for cryptocurrencies, Amundi has argued in its latest blue paper – Crypto-currencies: a bubble or the emergence of a new paradigm in decentralised finance?

According to the report from Europe’s largest asset manager, G7 regulators are determined to regulate the cryptocurrency (CC) ecosystem, leading to potentially severe price adjustments.

However, such changes would be temporary, and CCs would likely flourish again once the regulatory environment is clear.

Authored by Aundi CIO, Pascal Blanqué, and deputy CIO, Vincent Mortier, the report recognises the growing popularity of cryptocurrencies which promise a more inclusive form of finance.

Indeed, demand for CCs now extends beyond retail investors, with increasing activity from institutional investors and investment funds. The report provides the case of Tesla, which, in early February this year, acquired $15bn bitcoins.

Blanqué and Mortier call for the introduction of an “appropriate regulatory framework” that will simultaneously capitalise on the development of CCs whilst ensuring the entire financial system is not put at risk.

Yet there a several challenges surrounding the regulation of CCs. Using Bitcoin as an example, Blanqué and Mortier explain: “Bitcoin has no intrinsic return and there is no natural protection against capital loss, which raises the question of its fair value.”

According to the duo, CCs cannot be classified as money, because they do not posses the three qualities that have characterised money: a unit of account, a store of value and a medium of exchange.

With the ability to identify motives for ownership, but lacking the ability to rank them, Blanqué and Mortier add: “It is not possible to estimate the potential demand for these assets unless assumptions are made about the precise role they will play in the future.”