The crypto sector is reaching new lows after last week’s massive push down, but a report from Canada’s central bank indicates that Canadians increased their crypto adoption from 5% to 13% between 2020 and 2021.
The Bank of Canada Financial System Review report also shows that the median holding of Bitcoin was about $500, mostly for investment purposes. The primary reason why the adoption rate is still relatively low is the ongoing price volatility of the crypto sector, which saw a massive expansion from about US$200 billion at the start of 2020 to a peak of close to US$3 trillion in November 2021. Furthermore, the high transaction costs for some assets, like Ethereum, pushed back many merchants from adopting crypto assets as a payment method.
“The prices of crypto assets such as Bitcoin and Ether were generally four to five times more volatile throughout 2021 than the S&P 500 stock market index was.” the report notes.
Canadian institutional investors are increasing
Speaking of adoption, one of the key friction points of embracing new technologies is the reaction of institutional investors. Canadian institutional investors are growing, despite the lack of readily available and consistent data on the exposures of financial system participants to these markets, which is vital for such investments.
Nevertheless, the launch of closed-end funds, crypto exchange-traded funds, and listed companies dealing in or mining crypto assets have paved the way for indirectly accessing the crypto sector. The emergence of decentralized finance, crypto lending protocols, and the rise of crypto derivatives have influenced the way investors reach cryptos.
Financial professionals managing Canadian province Quebec’s $326.7 billion pension fund did the latest wave of institutional investments in the Canadian crypto space. They have invested over $150 million in Celsius Network, ignoring warnings from U.S. state regulators.
On the other hand, Celsius Network paused withdrawals on June 14, in an effort to put the company “in a better position” to honor redemption requests “over time.” The move quickly sparked a wave of concerns about the scenario with TerraUSD repeating itself. As CryptoBrowser reported, TerraUSD’s crash wiped out almost a quarter billion dollars off the entire crypto market capitalization, which now is in bearish momentum.
Problems with the crypto adoption
The lack of adequate regulatory frameworks for crypto assets, according to the Bank of Canada, is among the key vulnerabilities of the sector, since cryptos are acting similarly to traditional assets without being regulated and overseen by authorities.
“Until this regulatory gap is addressed, investors in and end users of unbacked crypto assets are subject to a heightened risk of financial losses from events such as fraud, cyber attacks, or the failure of a key custodian or service provider. Moreover, a significant challenge to the regulation of crypto assets is that they are easily used for transactions across borders.” the report adds.
Despite the regulatory havoc, authorities around the world are franticly working to create a framework, which would eliminate the risks, associated with crypto assets. For instance, Canada’s provincial securities administrators have issued guidance for the regulation of crypto assets and crypto asset trading platforms. Canada would also examine the need for a CBDC project, under legislative review of the financial sector.