The Central Bank of Cyprus (CBC) has issued a warning regarding the risks associated with investing in crypto-assets, stressing the need to safeguard financial stability and protect consumers.

In a statement, the CBC advised the public “to be cautious before investing in crypto-assets, given the risks that could lead to significant financial losses and fraud”.

The bank explained that crypto-assets come in various forms, including those designed for payments, investments, and access to goods or services.

It highlighted that within the European Union, the introduction of the Regulation on Markets in Crypto-Assets (MiCA) aims “to enhance transparency and create a strong framework for crypto-related activities, reducing some, but not all, of the risks associated with crypto-assets”.

The CBC also acknowledged the ongoing evolution of blockchain technology, noting its potential applications in payment systems and the development of central bank digital currencies (CBDCs).

However, it cautioned that “despite optimism about blockchain technology’s potential, the practical use of crypto-assets remains questionable”.

Furthermore, the bank stressed that crypto-assets have faced significant challenges, including “extreme volatility, highly speculative trading, fraud incidents, and a lack of trust due to inadequate regulatory frameworks and infrastructure”.

The CBC also pointed out that crypto-related activities are still considered high-risk under specific regulations, such as anti-money laundering (AML) and counter-terrorism financing (CTF) laws.

For these reasons, the CBC deemed crypto-assets unsuitable as currency reserves, stating that they should, at the very least, “have fundamental value, sufficient liquidity, and the characteristics of secure assets”.

Finally, the bank clarified that no Cypriot banks invest directly or indirectly in crypto-assets, adding that “trust in money is fundamentally based on central monetary authorities, distinguishing it from speculative private initiatives such as crypto-assets”.