"The world of crypto is fundamentally a cross-jurisdictional digital space without clear-cut borders. This means that it’s essential that investors entering the crypto-asset market have a clear idea of where their activities are being carried out and what rules apply to their investments."

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Safe financial innovation: guidelines for not getting lost in the world of crypto

What began as an almost niche project with the launch of Bitcoin in 2009 is now a complex financial ecosystem that attracts both retail investors and large institutions. But entering the world of crypto continues to raise some key questions: What risks are we taking? Who oversees the crypto-asset market?

In this episode of CIENxCIEN, Ana Comellas meets María Molero (from the Market Infrastructure and Innovation Department) and Lucas García and Diego Hernández (both from the Regulation Department) to discuss how technological innovation can coexist with financial stability.

María Molero begins by setting out the three main crypto-asset categories to explain the current landscape. The first category comprises unbacked crypto-assets, like Bitcoin, whose value depends on supply and demand, the latter of which is often influenced by very volatile factors. Then we have stablecoins, which seek to hold a stable value pegged to a reference asset (such as the euro, the dollar or gold) and which pose specific reserve and redemption challenges. And, lastly, there are tokenised assets, which are real-world assets (like bonds, shares or real estate) that have been converted into digital tokens.

In this week’s episode, we take a closer look at key turning points like Facebook’s Libra project, which accelerated the global regulatory response. Lucas and Diego also explain how Europe’s Markets in Crypto-Assets (MiCA) Regulation came about. This pioneering regulation is aimed at weeding out purely speculative projects, to make way for solid, transparent business models.

We also explore the role played by banks: What’s the relationship between the traditional financial system and crypto-assets? Can banks issue their own stablecoins? How should banks protect their customers’ money if they decide to invest in this ecosystem?

The bottom line is clear: we shouldn’t get carried away, but we shouldn’t be afraid either. We just need to be well informed before investing in crypto-assets, as we would with any other investment. The regulation in place to protect investors means we needn’t miss the financial innovation boat.

An episode on crypto-assets wouldn’t be complete without looking at their underlying infrastructure, namely Distributed Ledger Technology (DLT), including the popular form, blockchain.

Acknowledgments:

This episode was recorded in the banking hall of the Valladolid branch office. We extend our special thanks to the branch office director, Natividad Santiago, for welcoming us, and to our colleagues, particularly Álvaro Calderón, for showing us their work.