Decrypting Cryptocurrency

On Monday, February 26th, the School of Business Administration organized an MBA Open Lecture “Decrypting Cryptocurrency”. The lecture was hosted by Dr. Dominik Stroukal, the director of Liberalni Institut and the co-author of the first Czech book on the topic of cryptocurrencies.

Cryptocurrencies are slowly but surely entering the next stage of their development – the stage of uncertainty triggered by the fact that both individual governments and the European Union are beginning to regulate them. Vice-President of the European Commission, Valdis Dombrovskis, confirmed this week that the European Commission is already preparing a regulatory action. „Based on an assessment of risks and opportunities, as well as the appropriateness of the existing rules for these instruments, the Commission will soon decide whether regulation at the EU level is needed,“ Dombrovskis said at a meeting with the European Central Bank and other stakeholders.

The argument has traditionally been to protect consumers, and in this case also investors, from the risks associated with cryptocurrencies – the biggest risk being significant fluctuations in their value. To a certain extent, however, the investors are aware of the risks. „As far as large funds are concerned, the main problem remains the enormous volatility of cryptocurrencies, which is convenient for neither conservative nor dynamic investors,“ explains Peter Bukov, Chief Analyst at Topforex. He also adds: „In my opinion, this type of investors will therefore continue to avoid cryptocurrencies altogether.“

Even in the Czech Republic, various cryptocurrency funds are emerging, which encourage mediated investments into cryptocurrencies. But analysts warn against this trend. „The issue with cryptocurrencies is their licensing and subsequent trading,“ said Bukov from TopForex. Dominik Stroukal, an expert on cryptocurrencies and co-author of the first Czech book about bitcoin, urges caution on cryptocurrency investments. „The main risk of such investments is that you do not own the cryptocurrency within the funds. Unless you have private keys with you, you do not own anything. Even if you were promised something, you have nothing. The number one rule with cryptocurrencies is to have private keys with you,“ said Stroukal this week during a lecture at the Anglo-American University in Prague.

On the one hand, regulation can limit the attractiveness of cryptocurrencies. „One of the biggest benefits of cryptocurrencies is that they are not regulated. If governments and central banks start to regulate them, it may reduce their attractiveness. Some regulation is necessary, of course, but the question is how far the governments go with it,“ said Bukov. On the other hand, turbulent development in investment instruments begins to naturally generate the demand for such regulation.

Cryptocurrencies such as bitcoin are not yet legally defined. „Is it a commodity? Is it money? Is it an investment? Is it a token of value? Nobody knows yet and that is why banks do not like to use it and mostly they even cannot use it. Regulation, not so much in the sense of restriction, but rather in the sense of legal anchoring, would definitely increase interest in cryptocurrencies,“ commented Stroukal.

While EU leadership roundtable discussion on bitcoin regulation and other virtual currencies took place in Brussels, parallel discussions were held in Prague in the crowded hall of the Anglo-American University about the threats that cryptocurrencies – which are still independent means of payment and investment instruments – will face this year. „It's interesting that the regulation has not come sooner. 2018 will be a key year in determining how the regulation will develop. The current situation seems to be rather pessimistic as some expect strong government interventions,“ predicts Dominik Stroukal. He believes that even very strict regulation will not prevent fraudulent projects: „It would only stop good projects that would have to deal with pointless bureaucracy. Let cryptocurrency be free.“

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