Central banks worldwide have sought to take a more active role in regulating cryptocurrencies in response to a years-long boom in unregulated trading and mining of digital assets.
While most regulators have remained cautious over the growing interest across the world in crypto assets by both individuals and institutional investors, some have gone as far as seizing assets and blocking crypto transactions.
Bitcoin – the largest cryptocurrency in terms of valuation – has experienced a roller-coaster ride this year, surging close to $65,000 before plummeting to below $30,000 this month, underscoring the volatility risks of trading in crypto,
Here are five things central bankers are doing to fight against the systemic risk posed by cryptocurrencies:
Launching their own digital currencies
Some economists such as Nouriel Roubini have predicted that central bank digital currencies will become superior to cryptocurrencies and will one day replace them.
“A digital version of central bank currencies…will eventually become the means of payment of the future, and therefore, that’s going to be fully crowding out private monies like cryptocurrencies,” Roubini told Kitco News.
Central banks seizing Crypto Assets
Regulators are also moving to seize undeclared crypto assets in tax avoidance stings. South Korea recently cracked down on 12,000 citizens and confiscated $47 million in crypto assets after a month-long probe. Other countries have done the same on the grounds that they are tackling fraud or money laundering.
Central banks criminalizing crypto trading and mining
China has intensified its ban on crypto by blocking the digital currency transactions and the government issuing warnings against trading and mining cryptocurrencies. The situation is so bad that some miners have been forced to flee overseas. Chinese authorities say cryptocurrencies disrupt economic order and facilitate illegal asset transfers and money laundering.
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Most central banks from Kenya to Switzerland have moved from just issuing cautions to outright fear-mongering against cryptocurrencies. Swiss Central bank-owned Bank for International Settlements said cryptocurrencies “work against the public good”.
Clamping down on crypto-enabling entities
Central banks also indirectly clamp down of the growth of cryptocurrencies by limiting their use and application on platforms such as Alipay, closing down crypto exchanges and asking commercial banks to reject crypto transactions.
The regulations include banning any products or services involving transactions to virtual currencies, screening accounts used for currency exchanges or over-the-counter dealers, and cutting off payment channels to crypto-related funds.
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