Bitcoin bad for amateur investors, BSP warns
Filipinos who want to jump onboard the cryptocurrency bandwagon are being urged to exercise “extreme caution” when speculating on Bitcoin and other forms of virtual money due to their inherent volatility that could easily result in large losses for inexperienced investors.
The warning was issued by the Bangko Sentral ng Pilipinas in a publication released late last week to help educate the public on both the benefits and dangers of the new technology-based medium of exchange that has also become a popular asset for retail investors.
“Because of price volatility, virtual currency holders may incur significant losses when trading or investing in [them],” the central bank said. “While virtual currencies were not initially designed to be used as an investment product, some people speculate on them, which adds to the price volatility.”
Bitcoin—an internet-based form of exchange based on a secure form of moving information called blockchain—gained popularity late last year when its price spiked from mere cents to a peak of around $20,000 a unit in early 2018. Its price has since declined sharply and is now worth only $6,800, resulting in large losses for late-coming investors who bought in at the peak.
The BSP pointed out that, as with any other type of investment, prospective virtual currency investors should know and fully understand the nature of cryptocurrencies before speculating or investing in the product.
“The public is advised not to blindly follow the crowd, adopt herd mentality or engage in speculative transactions,” the central bank said. “The public should exercise extreme caution at all times when dealing with virtual currency products and transactions in general.”
According to the central bank, “virtual currency” is a general term that covers different types depending on business model—centralized (for example, one entity or individual issues the virtual currency); decentralized (no central repository or administrator but several entities/individuals maintain the currency); convertible (they can be exchanged to fiat currency and vice versa), or cryptocurrencies.
Cryptocurrency is a type of virtual currency that uses cryptography—a method of storing and transmitting data in unreadable form so that only the intended receivers can read and process it. This allows cryptocurrency transactions to be carried out in a decentralized manner by a group of users. The first and most popular cryptocurrency to date is Bitcoin, introduced in 2009.
BSP Governor Nestor Espenilla Jr., however, acknowledged that virtual currencies might provide benefits in remittances and wire transfers, electronic payments and help improve financial inclusion in the country.
“The Philippines is one of the countries receiving high levels of remittances from overseas,” the central bank said. “Many Filipinos either receive remittances from abroad, or send remittances to relatives and loved ones within the Philippines. Increasing number of Filipinos shop online, pay for goods/services online, or transfer funds via digital means. Such remittances and transfers—when facilitated using cryptocurrencies or virtual currencies through licensed exchanges—are relatively more convenient, faster and cheaper compared to traditional remittance and payment schemes.”
“In this case, the average Filipino stands to benefit,” the regulator said. “The entry of virtual currency exchanges also enhances competition in the remittance and payments market, which can result in lower transaction costs and improved services.”
The regulator added that, as a digital value or asset, virtual currencies are easier to use as payment for goods and services that are offered online —an attribute that can support the growing e-commerce industry in the Philippines.
“Virtual currencies may be used to facilitate and expand financial services for low-income Filipinos and those living in far-flung areas where traditional financial service providers like banks are unable to reach,” the BSP said.
