ECB, in the fifth issue of its Economic Bulletin, published an article examining the risks posed by crypto-assets and the ways to enhance monitoring of these risks. The article describes the characteristics of crypto-assets, identifies the primary risks of crypto-assets that warrant continuous monitoring, and outlines the linkages that could cause a risk spillover. It then discusses the indicators for monitoring crypto-assets (based on publicly available data), the availability and reliability of data, existing data gaps, and ongoing statistical initiatives of ECB that attempt to overcome the outstanding challenges. Finally, the article offers a number of conclusions and points to the way forward for monitoring crypto-assets.
The article highlights that crypto-assets can be defined and analyzed from different perspectives, namely their underlying technology, their features, and the economic implications of such assets. ECB chose to define crypto-assets as a new type of asset recorded in digital form and the focus is on the regulatory, economic, and business dimension of crypto-assets as a new asset class, rather than on the use of technologies that are needed for its existence. The article highlights that crypto-asset risks primarily originate from the lack of an underlying claim, their (partially) unregulated nature, and the absence of a formal governance structure. The extent to which the financial system and the economy may be exposed to crypto-asset risks depends on their interconnectedness. Holdings of crypto-assets, investment vehicles, and retail payments represent the main linkages among the crypto-asset market, the financial systems, and the broader economy.
Crypto-assets are enabled by distributed ledger technology and characterized by the lack of an underlying claim. In the light of the implications they might have for the stability and efficiency of the financial system and the economy and for the fulfillment of the functions of the Eurosystem, it is believed that crypto-assets warrant continuous monitoring. Thus, ECB has set up a dataset based on high-quality publicly available aggregated data complemented with other data from some commercial sources, using application programming interfaces and big data technologies. However, important gaps and challenges remain: exposures of financial institutions to crypto-assets, inter-linkages with the regulated financial sectors, and payment transactions that include the use of layered protocols are all examples of domains with prominent data gaps.
The challenges in measuring the phenomenon of crypto-assets are diverse and relate both to on-chain and off-chain data. Additionally, new and unexpected data needs may well arise with further advancements in crypto-assets and related innovation. Statistical initiatives by ECB and the central banking community are expected to provide a valuable input to efforts aimed at closing the data gaps associated with crypto-assets. Looking ahead, ECB will continue to work on indicators and data by dealing with the complexity and growing challenges encountered in analyzing on-chain and layered protocol transactions. Furthermore, investigation will continue on the new data sources for information on inter-linkages of crypto-assets. With respect to the off-chain transactions, amid a multitude of methodological options, further work will focus on increasing the availability and transparency of the reported data and the methodologies used, harmonizing and enriching the metadata, and developing best practices for indicators on crypto-assets.
Related Link: Article on Crypto-Assets
Keywords: Europe, EU, Banking, Securities, Crypto Assets, Distributed Ledger Technology, Economic Bulletin, Fintech, Big Data, ECB
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