The Central Bank of Sri Lanka has taken action in the form of public notices to warn against the risks of crypto investments. The bank in the notices noted three probable risks that could be associated with crypto investment and trade.
Digital assets like cryptocurrencies have been making headlines for all the good and bad reasons. Cryptocurrencies might be getting all those eyeballs but the fact remains that it is quite risky. Countries time and again warn the public about the several hazards that come with crypto. They have a high investment risk as they are hyper volatile assets. As with equities and bonds any particular equity can go to zero so can a cryptocurrency. Cryptocurrencies are highly volatile so what may be $1000 today might fall to nearly 0 over time.
Another issue with the crypto is its operational risk; how do you store these cryptocurrencies securely?
However, what tops this list of risks is crypto’s lack of regulatory regime.
Many countries have been issuing warnings with respect to risks involved in cryptocurrency investment. One such country to issue such a warning recently is Sri Lanka. Sri Lanka’s Central Bank circulated a public notice warning about the risks, threats, and hazards related to cryptocurrency.
In its public notices, the central bank cautioned against primarily three types of crypto activities. These include; investment in initial coin offering, cryptocurrency mining, and trading through cryptocurrency exchanges.
According to the warning of the central bank, all such activities make crypto miners and investors vulnerable to significant risks.
In the absence of a regulatory framework for crypto-related activities, the Central Bank has identified some primary areas of concern for crypto investors.
Retail investors getting into a cryptocurrency must foremost be conscious of the fact that the crypto industry lacks any precise legal or regulatory framework. Thus in the event of any dispute or issue arising out of cryptocurrency the investors won’t have any legal recourse.
The bank warns against the high volatility of the value of crypto tokens. According to the bank, the high rate of unpredictability involved poses potentially huge financial losses.
Central Bank thirdly added that there is a high probability of cryptocurrencies’ association with illegal activities. These illegal criminal activities could range from money laundering to terrorism financing.
It is only in recent times that the Financial Action Task Force has recognized Sri Lanka’s clampdown on money laundering risks. It also obtained its delisting from a grey list of challenging jurisdictions.
Lastly, the institution warned against a probable risk of the foreign exchange regulations of the country. Since virtual currencies and cryptocurrencies are traded as assets in exchanges they are liable to the provisions of the Foreign Exchange Act.