In November of last year, the central bank of Peru released a warning announcing that cryptocurrencies do not have the support of central banks and are, therefore, risky investments. According to the bank, digital currencies pose a risk to investors because they are subject to high volatility and are vulnerable to fraud and the application of illegal financial activities.
Peru’s central bank made this announcement at a time when the cryptocurrency industry was going through a rough chat that had seen the price of Bitcoin drop below the $4000 mark for the first time since it hit a high of almost $20,000 in December 2017. By the end of 2018, the overall market capitalization of the cryptocurrency industry had dropped by more than 70%.
Even though there are currently no indications of Peru developing crypto-related regulations, it has been established that back in September 2017, the Superintendency of Banking and Insurance in the country registered with the R3 consortium to enable it researching blockchain technology as well as looking into its implementation in the country.
In addition to this, the number of people trading cryptocurrencies in Peru increased steadily in 2018. Based on the data available on CoinDance, 17 Bitcoins were being traded each week at the beginning of the year in the country. This amount increased significantly to reach 150 Bitcoins per week towards the end of September.
According to the CEO of Atlas Quantum, the largest cryptocurrency firm in Latin America, the rise in the number of crypto traders in the region is being fueled by the challenges that people encounter when transacting across borders. As such, people in this region see the entry of cryptocurrencies, such as Bitcoin, as an avenue for protecting their investments. But beyond stability and speed, people in Peru and other South American countries are embracing cryptocurrencies due to their ability to enable them protect their wealth.
Even with the stand taken by the central bank in Peru, it is highly likely that the government in this South American region will issue its own cryptocurrency in the future.
Bill Papacharalampous, CEO of Blockcommerce says, "Having an immutable ledger and cryptographic protections is actually much safer in my opinion. How can there be tax evasion if the governments receive their fair share immediately through smart contracts? Cryptocurrency and blockchain technology offers several advantages over fiat systems, and it is only a matter of time before central banks issue their own centralized variants."
Moving forward, we are also likely to see more initiatives by academics in documenting ways to stabilize cryptocurrencies.
"With regard to price stability, perhaps there will soon be some initiatives by academia to publish articles on how to stabilize cryptocurrencies. As with all currencies, how to deter fraud and criminality without inhibiting the flow of commerce will be an important challenge for regulatory bodies to manage within the decentralized crypto community," notes Qupon founder and CEO, Joseph Oreste.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.