Albania’s central bank has issued a warning to potential bitcoin investors against buying digital currencies, according to a report.
In a public notice titled ‘On the risks associated with the use of virtual currency,’ the Bank of Albania highlighted the growing interest in the possession or trading of digital currencies such as bitcoin.
The bank said:
“The Bank of Albania has not licensed any financial entity, whose activity includes also virtual currencies. Consequently, the companies involved in this activity in the Republic of Albania are not licensed, and therefore their activity is not subject to the regulatory and supervisory framework of the Bank of Albania.”
The financial provider added:
“As a result, given the absence of rules that would discipline the financial activity and their supervision, the activity of these entities is characterized by a considerable risk and uncertainty, and does not guarantee the protection of customers against investment loss.”
This notice from the Bank of Albania follows the thought process of other financial establishments such as in India. In the past India’s central bank, the Reserve Bank of India (RBI) has issued a statement on its stance regarding digital currencies and the risks bitcoin investors face.
In February, the bank said:
“The Reserve Bank of India advises that it has not given any licence / authorisation to any entity / company to operate such schemes or deal with bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with virtual currencies will be doing so at their own risk.”
Now in latest developments the Indian government is thinking about implementing a goods-and-services tax on bitcoin purchases as it thinks about introducing a regulatory regime.
However, similar to the Central Bank of Armenia, Albania’s central bank has warned bitcoin investors away from the currency stating that the ‘involvement in this kind of activity remains an individual responsibility of the person that engages in it.’
According to the Bank of Albania there are five risks that potential bitcoin investors need to be aware of when buying or adopting cryptocurrencies. These are:
- Volatility of the digital currency market. The bank states that the value of the digital currency can be manipulated, which could cause the investor to suffer a significant loss. Furthermore, there is the possibility that the virtual currency may not convert back to fiat currency due to counterparty liquidity shortfall.
- The exchangers of the digital currency are not known. ‘Consequently, anyone who invests their money in virtual currency exchanged by these companies will face the risk of loss as a result of different issues they may exhibit,’ the bank states.
- The exchange platforms are exposed to cyberattacks. The bank states that under these conditions the platform becomes unsafe with hackers able to access to funds that would be lost to the victim forever. It adds that unlike the deposit insurance funds in banks, investing in digital currencies comes with no coverage or protection.
- Using digital currencies for illegal transactions. Due to the anonymity that cryptocurrencies provide they ‘can be used by certain individuals to perform illegal activities such as money laundering, terrorism financing, or smuggling of goods.’
- Know-Your-Customer (KYC) identification software at exchanges are not subject to laws and regulations for data protection or security standards. ‘Consequently, there is no guarantee that these credentials will be safely administered to avoid their theft or misuse,’ the bank said.
As a result of these five risks, the Bank of Albania finishes by urging the public to be cautious and responsible when looking after the savings or liquidity they own. It adds that investments should be toward financial products and instruments that are licensed and supervised by the central bank and the Financial Supervisory Authority.
It’s not known exactly what businesses, if any, will be affected by this notice from the central bank, but it paints a clear picture as to the bank’s stance on the issue of digital currencies.
Even though the digital currency market has been around for nearly 10 years, the market value of it still remains volatile. As a consequence of this, many would-be bitcoin investors are often put off or persuaded to avoid investing in the digital market.
However, others in the space think it’s a good idea to put some money into it to understand the market better.
In the past, Australian-born Michael Dunworth, CEO of Silicon Valley-based blockchain Wyre, has said that financial advisors should invest in Bitcoin to understand the currency better.
According to him you can invest a little or a lot, but you don’t have to break the bank to invest in it.
“You could invest in $10, $100 or $1,000 worth of Bitcoin.”
“It’s exactly what I said when bitcoins were at $500, then they hit $1,000 and it’s now past $1,500. Bitcoin is the top performing currency by a long shot in the last six out of seven years.”
Dunworth believes that while bitcoin is volatile in the short-term, it’s the long-term promise of it that bitcoin investors should be looking toward.
“A lot of people say that bitcoin is very volatile. It is in the short term, but if I were doing fund management for my client, I see it as a very good long-term investment.”
Bitcoin Price Drop
Since bitcoin reach $3,000 at the beginning of June the digital currency has been experiencing a slow decline with many people claiming that it is undergoing a price correction given the rapid appreciation rate in the last three months.
Of course, there will be plenty wondering exactly when the price will recover to previous highs again or if the market will continue to drop in value.
At the time of publishing the value of bitcoin was trading at $2,030 on the 17th July after slipping down to $1,900 over the weekend. The market value of all the digital currencies is currently worth $70 billion, a significant drop from its $115 billion market value in June.
As a result of the recent price drop it will be interesting to see whether the Albanian population avoid trading in the digital currency market heeding the warning from its central bank.
Featured image from Flickr via Public Domain Photography.