A radiography of crypto-assets and their risks

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Public awareness of crypto-assets has increased but there is still room for improvement in understanding. According to the British Financial Conduct Authority, in 2019, only 42% of adults had heard about crypto-assets. This is in contrast to 73% in 2020, 78% in 2021 and 91% in 2022. However, only 74% of those who had heard of crypto in 2022, were able to correctly identify its definition from a list of statements. According to this analysis, 10% of crypto-asset owners believe they receive the same protection as other traditional banking products. While 79% of crypto-asset users purchased crypto-assets using disposable income or cash, 6% bought crypto-assets using credit or borrowed money, and 19% used long term savings or previous gains from sold crypto-assets. Another survey by the OECD for Asia also arrives at similar conclusions. Significant contributions have also been made in academia, with Panos and Karkkainen (2019) showing that while financially literate consumers are more likely to be aware of crypto-assets, they are not more likely to own them. In fact, this is confirmed by Carbó, Cuadros and Rodríguez (2023), who show that people with higher financial literacy skills are less likely to own cryptocurrencies.

This in-depth analysis aims to clarify the main concepts, use cases and risks surrounding the world of crypto-assets. This policy paper lists and explains the main features, potential benefits, actors and elements of the value chain of crypto-assets, pointing out the risks they pose and provides concrete examples of cases where these risks have materialised. Following the analysis, the different regulatory approaches followed in the main jurisdictions are explained and a few policy recommendations are put forward.

Fredrik Andersson is Researcher at ECRI and CEPS. Judith Arnal is Senior Research Fellow at ECRI and CEPS.