Latvijas Banka highlighted the decline in interest and use of cryptocurrency among Latvians in its “Financial Stability Report” for 2023.
Only 4% of people, down significantly from the 8% seen in February 2022, bought crypto assets, the central bank study claims. There are a number of reasons for this declining trend in cryptocurrency investments.
The bad perception of the sector is one of the main causes of the diminishing interest in cryptocurrencies. A lack of trust and faith in digital assets has been exacerbated by instances of fraud and insolvency among significant market participants.
Furthermore, the enthusiasm for cryptocurrency investments has probably been subdued by people’s past poor financial decisions.
Reasons Behind The Declining Trend In Cryptocurrency Adoption
The connection between cryptocurrency and money laundering is another significant worry. Alarms have been raised by regulatory agencies around the world regarding the possible exploitation of digital assets for illegal activities. This unfavorable reputation may have discouraged many prospective investors from entering the cryptocurrency market.
The survey also noted that a contributing cause to the waning interest in cryptocurrency is the growing connections between crypto-asset startups and supervised financial sector actors.
Some people may be hesitant to engage in the cryptocurrency market as a result of this link since it may be viewed as a risk to the stability of their finances.
The analysis examined credit card usage statistics to determine the level of adoption of cryptocurrencies. It showed that 51.8 million euros were moved to cryptocurrency wallets by Latvians in 2022.
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In the first quarter of 2023, the rate of transfers, however, drastically decreased to 10.7 million euros. It’s interesting to note that a sizable fraction of these transactions were done with businesses in other European nations, especially those with growing financial technology ecosystems like Lithuania, Estonia, Malta, and Ireland.
Central Bank’s View On Cryptocurrencies
The survey noted that retail crypto payments continue to rule in Latvia despite the drop in crypto investments. However, these payments are typically modest, with 44% of all retail cryptocurrency payments being for less than 60 euros. 97.5% of all transactions were for sums under one thousand euros.
While Latvian banks have begun to provide services such as custody and exchange connected to digital assets, the central bank expressed concern. In light of the new dangers connected with cryptocurrencies, it emphasized the significance of appropriate supervision and regulation to defend financial stability and consumer safety.
The cautious attitude Latvijas Banka has taken regarding digital assets is clear from the numerous public statements it has made about the dangers and difficulties involved. The bank made it clear that because of their highly volatile and unpredictable nature, cryptocurrencies are not regarded as legal money.
However, the paper acknowledged the potential advantages of cryptography. The establishment of a regulatory sandbox specifically for fintech companies researching blockchain and other cutting-edge technologies by the central bank served to actively promote innovation in the industry.
Additionally, the bank collaborated with the Bank for International Settlements, other central banks, and others on a global digital currency project.
Featured image from CryptoMode