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Unbacked crypto-assets not suitable as money


Published: 07 November 2022

Grafiek met crypto

Unbacked crypto-assets like Bitcoin are mainly used as speculative and risky investments, and their value is highly volatile. Bitcoin is therefore ill-suited as a means of payment, store of value or unit of account, and this means it is unsuitable as money. This is one of the messages found in the DNB Occasional Study entitled ‘Crypto-assets - evolution and policy response’.


In 2018, around 900,000 Dutch people had invested in crypto-assets. By June 2022, this number had increased to almost 2 million, according to a sample survey of Dutch people aged 18 and over (Cryptovaluta Monitor). Another survey reveals that almost half of crypto holders have invested less than €500 and 14% have invested €5,000 or more (IPSOS, 2021).

A significant part of the Dutch population is interested in crypto-assets, despite the market's downturn in 2022 (Figure 1). This is also apparent from the questions people ask our Information Desk. The most frequently asked question is whether crypto-assets are in fact money. This question is understandable, as the creators of crypto assets envisaged a role as an electronic form of cash, without the need for financial institutions.

Figure - Total value of crypto assets (in EUR)

Total value of crypto assets (in EUR)

Source: DNB calculations based on CoinGecko.


DNB does not consider unbacked cryptos to be money, as their prices are too volatile for them to properly fulfil the functions of means of payment, store of value and unit of account. The lack of underlying assets and the absence of a monetary authority stabilising their value create significant uncertainty about their value. The sheer number of cryptos and the lack of coordination also make them unsuitable as a unit of account. To be used as such, prices would have to be displayed in Bitcoin, Ether, Sol, ADA and XRP, which is confusing. Users of crypto assets seem to be of the same opinion. A mere 3% of Dutch crypto holders say they have used it to purchase something in 2022 (Cryptovaluta Monitor).

Consumers in the Netherlands are moreover already accustomed to making their payments electronically by more traditional means. The Dutch payment system is secure, reliable and efficient. Instant payments within the Netherlands are completed within a few seconds. So not even speed is a reason for using crypto payments in the Netherlands.

The question is then: what explains the popularity of cryptos in the Netherlands and other developed economies? Recent international studies suggest that the volatility referred to above and the lack of underlying assets make cryptos suitable for speculation or gambling. In line with this, a majority of Dutch crypto holders (63%) take the view that investing in cryptos is the same as gambling (Cryptovaluta Monitor). The prospect of making easy money with cryptos, which is widely advertised on social media, triggers psychological factors such as fear of missing out. Large price swings make it difficult to disengage. The Dutch Ministry of Finance has launched a campaign to make young people aware of the risks involved. 

The importance of strong institutions and a robust payment infrastructure

Statistics show that cryptos are more commonly used for payments in emerging economies than in developed economies. This discrepancy can be explained by differences in institutions and infrastructure. For example, cryptos are more commonly used where a country’s financial sector is less developed, capital controls are more stringent, the cost of payments between countries is higher and monetary institutions are weaker.

An extreme example is El Salvador, which has introduced Bitcoin as legal tender. But even in El Salvador, Bitcoin is not gaining a foothold among the local population. People are generally too poor to cope with currency fluctuations or do not have access to a mobile phone. The IMF (2022) therefore advises against the use of Bitcoin as legal tender, citing, among other things, the risks of high volatility to consumer protection and financial stability, and the risks to financial integrity.

Stablecoins can be useful for specific applications if properly regulated

The drawbacks of unbacked crypto-assets as a means of payment have not gone unnoticed even within the crypto world. Cryptos referred to as stablecoins were therefore developed for payments between different crypto currencies, and for exchanging cryptos for fiat money, such as euros and dollars. The idea is that stability is created by a financial institution linking the value of a stablecoin to underlying assets. In practice, however, the risks remain high because there is a conflict of interests between the issuer and the holder of stablecoins. This is because the issuer can increase returns by investing in riskier assets or holding insufficient backing. This harms the interest of the holder, who relies on the assumption that backing is sufficient, or else there would be a risk of a run on the underlying assets.

This is why the Markets in Crypto-Assets Regulation (MiCAR, see also DNBulletin, 2022) sets specific and additional rules for issuers of stablecoins, notably regarding the assets that serve to back the stablecoins issued. This set of rules, which is expected to come into force in 2024, could help build confidence in the market to capitalise on the specific use cases of stablecoins. It represents the first steps in terms of adequate regulation, as the crypto market is still evolving. In addition, laws, regulations and supervision will never mitigate all risks, if only because of the international nature of cryptos.

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