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Canada is the fourth-largest country in terms of hash rate and one of the first countries to authorise a Bitcoin ETF.
According to Bank of Canada deputy governor Paul Beaudry, cryptocurrencies like Bitcoin (BTC) do not pose a substantial risk to the financial system at their current level of use.
On Tuesday, Beaudry spoke at the Ontario Securities Commission Dialogue 2021 about the threats to the stability of the Canadian financial system.
When asked whether cryptocurrencies are a risk, the deputy governor responded that the Bank of Canada doesn’t think that crypto is “developing in a way that creates a systemic type of risk for a financial system” up to now. This is because cryptocurrencies are “quite removed from a financial system,” Beaudry noted.
But as the crypto market grows bigger with more people investing in it, crypto becomes more of a risk, which could mean a certain level of vulnerability, the official said:
“We’re not at the point yet of thinking this a big risk for the economy but this is something we’re keeping an eye on very closely.”
Beaudry also stressed that classic cryptocurrencies such as Bitcoin do not play much of a role in payments, as investors buy BTC “mainly to speculate.”
However, he believes that digital assets such as stablecoins, which are backed by assets and fiat currencies, could play a larger role in payments. “We’re keeping an eye on it as well,” Beaudry added.
Canada has established itself as one of the most crypto-friendly countries in the world, having become one of the first jurisdictions to authorise a Bitcoin exchange-traded fund. According to the Cambridge Bitcoin Electricity Consumption Index as of August 2021, Canada was the fourth-largest nation in terms of hash rate.
Despite the rapid development and use of cryptocurrency, the Bank of Canada has previously expressed caution about it. Despite institutional investors’ acceptance, Canada’s central bank stated in May that digital assets such as Bitcoin remain a high-risk asset.
The Bank of Canada noted in its financial system review on the most serious financial risks and economic vulnerabilities that “price volatility resulting from speculative demand remains an important impediment to the mainstream acceptance of crypto assets as a means of payment.”