Dutch regulator says national ban on cryptocurrencies would be difficult to enforce

Maria Nikolova

Although the regulator remains cautious about Bitcoin and its likes, it considers blockchain a promising technology.

The Netherlands Central Bank (DNB) has struck a cautious note with regard to Bitcoin and its likes adding, however, that it sees the technologies behind cryptocurrencies as promising. In a Position Paper, published earlier today, the Dutch regulator said that it does not see cryptocurrencies as posing a risk to the financial system stability, as the outstanding value of the cryptocurrency market is small compared to markets of fiat currencies like the euro and the dollar.

But the bank noted that sudden depreciation of the value of cryptocurrencies and certain tokens (the result of ICOs) may lead to a significant harm to consumers and warned that there is no safety net against such losses.

DNB noted, however, that it sees certain potential in the technology behind cryptocurrencies, that is, blockchain. The regulator said it had been working on four projects based on blockchain since 2015. The aim was not to launch a crypto coin, but only to understand the technique better. The results of these studies confirm that the technology is not yet mature enough to play a role in the Netherlands’ payment traffic – the system is too slow, too few transactions are executed per second, and the technology is not sustainable. The DNB notes that the technology is nevertheless interesting and may eventually offer opportunities in the financial world. The regulator underlines the benefits of blockchain for certain tasks such as the validation of documents, verification of identities and transactions.

Regarding any regulation of cryptocurrencies, DNB is against imposing a national ban on this market. The regulator notes that such a ban would be difficult to implement given the international nature of this market.

Whether certain restrictions should be imposed on trading in CFDs on cryptocurrencies is a matter raised in a recent public consultation launched by the European Securities and Markets Authority (ESMA). ESMA is currently discussing whether CFDs on cryptocurrencies, whose underlying assets have displayed very high price variation, should be addressed in the measures and whether a 5:1 initial leverage would provide investors with sufficient protection. Alternatively, a lower leverage limit (2:1 or 1:1) or stricter measures (such as a prohibition on the marketing, distribution or sale of CFDs in cryptocurrencies to retail clients) could be considered.

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