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Bitcoin investors tend to have low financial literacy, according to BoC research

Based on a series of surveys, central bank researchers found that around 5 per cent of Canadians owned bitcoin between 2018 and 2020.Andrew Vaughan/The Canadian Press

Canadian bitcoin owners tend to have low levels of financial literacy while being exposed to elevated levels of financial risk, according to new Bank of Canada research.

Based on a series of surveys, central bank researchers found that around 5 per cent of Canadians owned bitcoin between 2018 and 2020. That ownership was “concentrated among young, educated men with high household income and low financial literacy,” the researchers said in a paper summing up the survey results released this week.

The researchers found that bitcoin owners tend to have a greater knowledge of how bitcoin technology works than non-owners, but score lower on general financial knowledge questions. At the same time, “Canadians who are financially literate are more likely to be aware of bitcoin [than the average Canadian] but less likely to own it,” the researchers said.

The surveys, conducted annually between 2016 and 2020, highlight the risk of investing in the volatile and sparsely regulated asset class. Around half of the current or past bitcoin owners who responded to the surveys reported being affected by negative events, such as a price crash, scam or data breach.

The Bank of Canada has been tracking the adoption of cryptocurrencies since 2016 to see how they are being used and whether they represent a challenge to the existing money and payments system. So far, cryptocurrency ownership remains relatively limited in Canada, and most people treat it as an investment rather than as a means of payment.

Around 15 per cent of bitcoin owners who responded to 2019 survey said their main reason for owning the asset was for making payments.

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The last survey included in the research paper was conducted in November, 2020, which means that the research misses the run-up in cryptocurrency prices at the end of 2020 and into 2021. It also does not account for recent regulatory changes, such as the approval of cryptocurrency exchange-traded funds in 2021, which may have broadened ownership.

A pair of surveys conducted by KPMG in 2021 and early 2022 found higher levels of cryptocurrency adoption, including among institutional investors. Thirty-two per cent of the respondents to an institutional investor survey said they had some exposure to crypto assets, while 13 per cent of respondents to a separate retail investor survey said they had bought crypto assets.

The Bank of Canada’s research suggests crypto investors need to be aware of the risks that accompany the asset class. Eighteen per cent of the current or past bitcoin owners surveyed by the bank said they had experienced a price crash, 14 per cent said they had lost access to their digital wallets, and 12 per cent said they had participated in an initial coin offering that ended up being a scam.

The volatility of cryptocurrency prices alongside the history of fraud in the sector – most notably the collapse of Canada’s QuadrigaCX crypto exchange – has raised some financial stability concerns.

In its most recent financial stability report, published last May, the Bank of Canada said that “these markets are not of systemic importance in Canada, neither as an asset class nor as a payment instrument.

“But this could change if a large technology firm – a so-called Big Tech – with a sizable user base decided to issue a cryptocurrency that became widely accepted as a means of payment,” the bank said.

The Bank of Canada is developing a prototype for its own central bank digital currency (CBDC) – a kind of digital cash usable for online payments. The federal government has yet to green-light the launch of a CBDC, but the central bank is working on plans in case the government gives it the go-ahead.

There are two main reasons why central banks may want to develop their own CBDC: a collapse in physical cash use or widespread adoption of cryptocurrencies or other private digital assets, both of which could undercut the central banks’ position at the heart of the payments system and its ability to conduct monetary policy. So far neither has happened.

The federal government’s 2022 budget announced plans for a review of financial sector legislation that will look at cryptocurrencies and other digital assets.

Cryptocurrencies have become a hot political topic in recent months, with Conservative Party leadership contender Pierre Poilievre touting bitcoin and promising to make Canada the “blockchain and crypto capital of the world.”

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UK Government Unveils Plan To Exploit Potential Of Cryptocurrency

UK Government Has Unveiled Plans To Turn Nation Into A Global Cryptoasset Technology Hub

UK Government Unveils Plan To Exploit Potential Of Cryptocurrency

On April 4, the United Kingdom unveiled a detailed strategy to harness the power of cryptocurrency assets and blockchain technology to ease the process of making payments for customers.

Financial services minister John Glen said Britain will pass legislation to bring some stablecoins under the regulatory framework, such as complying with existing payment rules.

Stablecoins are cryptocurrencies that are designed to have a stable value in comparison to traditional currencies or a commodity like gold, avoiding the volatility that makes Bitcoin and other digital tokens unsuitable for most transactions.

The government believes that all stablecoins that reference a fiat currency should be regulated.

Here are 10 points to know about Britain’s cryptocurrency hub push:

1) The decision to regulate stablecoins to make way for their usage as a recognised form of payment is part of a larger plan to make the UK a global hub for cryptoasset technology and investment.

2) According to the Government of the United Kingdom, legislation for a financial market infrastructure sandbox to assist firms in innovating, an FCA-led CryptoSprint, collaboration with the Royal Mint on a non-fungible token (NFT), and the formation of an engagement group to work more closely with industry are among the measures.

3) Chancellor of the Exchequer, Rishi Sunak instructed the Royal Mint to design an NFT to be released by the summer.

4) Sunak said that he wanted to make the UK a global powerhouse for cryptoasset technology.

5) Stablecoin issuers and service providers will be able to operate and invest in the UK if the government passes the legislation to bring them into the payments regulatory framework.

6) The government can assure financial stability and good regulatory standards by recognising the promise of this technology and regulating it. This will allow these new technologies to be utilised reliably and safely in the future.

7) John Glen also stated that the UK will explore the transformative benefits of Distributed Ledger Technology in its financial markets. The technology allows data to be synchronised and shared in a decentralised manner, potentially resulting in increased efficiency, transparency, and resilience.

8) Later this year, Britain will hold a consultation on developing legislation for a broader set of cryptoassets, such as Bitcoin, taking into account the sector’s energy use.

9) The UK’s plan also includes exploring blockchain’s potential, including if it can be used to issue British government bonds or gilts.

10) The UK will also look into lowering disincentives for fund managers while including cryptoassets in their portfolios.


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Massena Town Board extends cryptocurrency moratorium until April 30 | Business

MASSENA — The Massena Town Board has extended the moratorium on cryptocurrency mining operations until April 30 after several people spoke out against them during a public hearing Wednesday night.

The previous moratorium was set to expire Feb. 28.

The meeting drew a full house that filled the board room, with speakers sharing concerns about issues such as noise, aesthetics and the impact on the environment.

Diane M. Major and her husband Anthony live in Massena Center, in close proximity to Block Scheme LLC. The company purchased the former Seaway Mini Mart property for $280,000 last year and had already been authorized to operate at that location before the moratorium was established. Companies that are already established are grandfathered in under the moratorium.

“How on earth do we have any history of our property on the corner being zoned commercial in the first place? I don’t believe it ever was,” Mrs. Major said. “The town board really shouldn’t have promised them any kind of business activity to be held on that property in the first place. I can tell you it borders residential houses. There’s all kinds of housing around there.”

She presented a petition with about 200 signatures that had been gathered in two days.

“So, basically we’re totally against this and they’re ugly. I don’t care if you put up a berm or a fence. That isn’t going to alleviate enough noise to shake a stick at and it certainly has to be maintained,” she said. “Since this company owned this property they aren’t really seeming to care about what it looks like.”

Steven J. Levac wondered if there had been any mention of building a foundation when the trailers were put on the site so they could be taxed.

“Or were they just allowed to put those trailers out there and go as they are? I’ve never been told otherwise one way or another by anybody in the town or the village,” he said.

Sergey Karpenko, founder of Block Scheme LLC, told board members during a November public hearing that he wanted to tear down a building that’s on the site and build a new structure that would include sea boxes.

“I live right next door to that. It’s not pretty. What does that do to the price of my property? What does it do to the people across the road from me? It’s going to deteriorate the price of my home substantially and I don’t want it there,” Mr. Levac said. “If these people are going to stay in the area, we ought to make them build a building and put these things in there.”

David W. Grant, a member of the Massena Town Planning Board, said he is in favor of extending the moratorium until proper regulations could be put in place.

“A lot of people will sit here critiquing how the units that are there now got to be there and who approved them. I will tell you that the town of Massena Planning Board approved them, but we had no regulations and no structure on how to prevent or suggest different methods of installing those units,” he said.

Vance T. Fleury, another member of the town Planning Board, pointed out the location of Block Scheme on a map and noted the area had been zoned neighborhood commercial when the business was approved.

“That’s why there was a convenience store. When the Planning Board looks at it, they look at what’s zoned here,” he said.

Mr. Fleury said he assumed that the regulations that would be drawn up would put additional language that the Planning Board could use in its reviews.

“That’s the whole idea of the moratorium, so we can develop the tools for the Planning Board to use to make sure that if we are going to have that type of development in the town of Massena, that the Planning Board has the appropriate tools to make sure that it’s done right and reflects our community’s values,” Town Attorney Eric J. Gustafson said.

Joseph D. Gray wondered if the moratorium could be made permanent because he didn’t see any benefit to Massena if a “pseudo-industry” came to the town. But Mr. Gustafson said he wasn’t sure.

“There are certain types of uses that municipalities can prohibit with this particular type of use. I think we’ve got to tread carefully in order to make sure we’re not including certain types of computer uses that would be something we all want,” Mr. Gustafson said. “The law looks way more favorably on short-term moratoriums for purposes of developing regulations than it does on permanent ones.”

Another speaker shared his concerns about carbon dioxide emissions from cryptocurrency operations and their impact on the environment.

“Cryptocurrency is one of the leading producers of CO2 emissions and it’s ruining our environment. You need to look at what this is going to do for your kids,” he said, suggesting that the state place a three-year moratorium on cryptocurrency mining to allow the Department of Environmental Conservation time to study its impact on the environment.

Francis J. Carvel was also in favor of extending the moratorium, and said his concern is what would happen with the computers when they are no longer usable.

“Sooner or later they’re going to be junk,” he said. “You have to be sure that these companies, if they do get a chance to come here — I don’t want to see them here myself — but, if they do get a chance, you’re going to protect yourself down the road,” Mr. Carvel said. “I don’t care if it’s Bitcoin or solar panels, someday those things are going to be toxic waste. You have to make sure there’s a bond or something, put money in escrow that will stay there until that company has cleaned up that property.”

Daniel C. Ramsey, an attorney with Snider and Smith LLP, said he favors an extension, but asked the board to be careful in limiting operations that want to come to Massena. At the hearing, he was representing Mission Peak Computing, which recently purchased a piece of property on Haverstock Road and is seeking a zoning change.

“My client is not engaged in cryptocurrency mining. The proposed use of the site is for a high-capacity computing data center, not crypto,” Mr. Ramsey said. “It’s not necessarily the merits of whether or not crypto should be allowed. There’s a lot of public outcry here. But, today’s proceeding and today’s public hearing is really whether or not the moratorium should be extended. My client’s position is that it absolutely should be extended in the short term.”

He said the computing company had retained the services of Brooks Washburn, “a well-respected architectural firm in the area,” and wanted to ensure it was “doing the right things and creating the right aesthetics or other building considerations that are aligned with the statutes the town creates as a result of this.”

“The moratorium is very important in the short term so that the regulations can be set in stone, and potential legitimate business enterprises such as my client want to make sure they’re following the rules that the town board sets out. So, we are in full support of the moratorium,” Mr. Ramsey said. “We would ask that the regulations the town board comes up with proceed in a fashion that is thoughtful, but not extended to the point where it disincentivizes legitimate business interests from coming to this area. Not every person seeking to use cheap power in Massena is cut from the same cloth.”

Town Councilor Thomas C. Miller has been working with Councilor Debra A. Willer and Mr. Gustafson on a subcommittee to get the new law in place. He said they have talked about the concerns that were brought up during the public hearing.

“We are working hard on trying to get everything right. I’m in favor of extending the moratorium to (April 30), with the caveat that we can extend it again at that point,” he said. “I’m in favor of letting us continue to work so we do the right thing.”

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RCMP ask cryptocurrency exchanges, financial institutions to stop transactions connected to convoy protests

The RCMP have sent letters to cryptocurrency exchanges and financial institutions instructing them to stop facilitating transactions with accounts connected to the convoy protests.

A letter sent to several cryptocurrency exchanges and obtained by The Globe and Mail notes that both the RCMP and the Ontario Provincial Police are investigating cryptocurrency donations “in relation to illegal acts falling under the scope of the Emergency Measures Act.”

The letter instructs the exchange operators to “cease facilitating any transactions” with more than 30 specific cryptocurrency wallet addresses that it lists.

“Any information about a transaction or proposed transaction in respect of these address(es), is to be disclosed immediately to the Commissioner of the Royal Canadian Mounted Police,” the letter continues.

The letter comes amid heightened scrutiny of Canada’s cryptocurrency sector as supporters of the protests have turned to alternative forms of fundraising.

On Monday, the federal government enacted the Emergencies Act, giving law enforcement and financial institutions additional powers to respond to blockades and protests against pandemic restrictions.

The RCMP have also sent letters to financial institutions, including banks, listing the names of people the police force have designated as being involved in illegal acts tied to the demonstrations, according to a spokesperson for the Canadian Bankers Association (CBA).

“All financial service providers, including banks, covered by the federal Emergencies Act will need to diligently implement the required measures, as stipulated by the government in the corresponding Emergency Economic Measures Order, which are not expected to impact the vast majority of customers,” the CBA said in a statement.

The letters put pressure on banks and other financial institutions to cut off financial services and freeze accounts for individuals the RCMP have named as being involved in blockades. But it is ultimately up to each financial institution to decide whether any particular client meets that threshold, and whether to freeze funds or block transactions.

A government order published Tuesday night details emergency powers that require financial institutions, including banks, credit unions and insurance companies to “cease dealing” in financial services or facilitating transactions for people participating in a series of prohibited acts blocking roads, bridges and other critical infrastructure. The order also covers a broad swath of the financial sector that includes securities dealers, payment providers and crowdfunding platforms.

Each company must “determine on a continuing basis” whether they are holding property or funds for someone designated as a participant in activities prohibited by the emergency order. Financial institutions must disclose those customers’ banking details and transactions to the RCMP or CSIS, but can act on their own to freeze accounts and cut off services.

That will force financial institutions to pull off a delicate balancing act: They must show government they are following the emergency order and helping crack down on illegal money transfers, but avoid the perception that they are overreaching in choking off access to funds for a subset of their customers.

On Wednesday, senior officials at Canada’s largest banks huddled in a series of meetings to determine in detail what their obligations are and how to fulfill them. But there was still some confusion and several lingering questions about how to proceed even after the emergency measures took effect.

Torstein Braaten, chief compliance officer and head of regulatory affairs at Toronto-based cryptocurrency exchange Bitbuy , said the platform does not have an opinion on whether or not there is criminal activity going on, but it intends to comply with the request from law enforcement.

“We are very concerned when an address gets identified as potentially associated with criminal activity … it’s just unacceptable for us to be involved in that,” Mr. Braaten said.

He noted, however, that it’s easy for people to create new cryptocurrency wallets. “If the criminals know that their bitcoin address is known, then they will arguably just spin out another address,” he said.

Justin Hartzman, chief executive officer of CoinSmart Financial, a publicly listed crypto trading platform that received regulatory approval last year, said the compliance orders are “indiscriminately targeting the whole cryptocurrency ecosystem.”

“It is unfortunate,” Mr. Hartzman said in an e-mailed statement. “But the addresses associated with this alert have been widely disseminated to the entire crypto community here in Canada and have reportedly been reported to the blockchain monitoring softwares that service the industry worldwide.”

Erica Pimentel, a professor at Smith School of Business at Queen’s University who studies cryptocurrency and blockchain, described the move as “heavy-handed.”

“If the exchanges are in a custodial relationship where they effectively hold a client’s bitcoin for them, then this is tantamount to freezing someone’s bank account. It seems like an overreach to be able to freeze a person’s account,” she said.

Prof. Pimentel said she questions how effective asking crypto exchanges to stop facilitating transactions with certain accounts will be. She said clients can simply stop using Canadian exchanges and turn to international firms which, she added, are “unfettered” by the Canadian Emergencies Act.

“The client holds their own crypto and the exchange is simply a vehicle that is being used to change one crypto for another,” Prof. Pimentel said.

A spokesperson for the RCMP declined to comment.

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