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Cyprus House committee baffled over bitcoin - CySEC, CB turn to EU for guidance

19 March, 2014

Officials in Cyprus are undecided whether the virtual currency bitcoin is a hazard or a blessing, with government and central bank officials now changing their tune and saying they expect guidance from their European Union peers.
The fact that the Central Bank of Cyprus, that has twice labeled the krypto-currency as an “anathema”, has now toned down its stance to one of “let’s ask the EU authorities” is an indication that after an initial dismissal by a small segment of investors, the bitcoin may be more welcome than before.
This is why the House Trade Committee had an initial hearing on the matter on Tuesday, inviting all concerned parties to submit their views, but at the same time warning consumers to be vigilant when trading with the virtual currency.
Committee chairman Lefteris Christoforou of DISY said that this is a subject that the state should consider very seriously and called on bitcoin users to be “extra careful”, while committee member Kyriakos Hadjiyiannis (DISY) said “it is our duty to seek out the necessary guarantees that will secure all citizens, and especially those who trade with bitcoin.”
He added that a framework needs to be put in place that will regulate the bitcoin use “so that we do not have new adventures,” probably in reference to the stock exchange boom and bust in 1999 where lax regulation saw investors lose their fortunes, while more recently, banks duped thousands of investors to invest in bonds that turned out to be unsecured and have since vanished into thin air.
Opposition AKEL MP Costas Costa said that “both the Central Bank and the Cyprus Securities and Exchange Commission (CySEC) said in their statements during the committee meeting that they needed to wait for final decision from the authorities and institutions of the EU in order to be able to take a final decision and if it requires regulation or a new bill of legislation.”
He added that risk involved was due to the fact that bitcoin is trade over the Internet, where there is no oversight or regulation.
DIKO deputy Angelos Votsis said that the commercial transactions using bitcoins are neither regulated nor subject to any law. The public must be especially careful and be well informed before they make any commercial choices.”
This is exactly what the local bitcoin marketing company, Neo & Bee Ltd., said it wanted, with Chief Operations Officer Yiorgos Papageorgiou telling MPs that the bitcoin “is a new method of transaction, which, contrary to conventional trading, is decentralised and anyone can transact with anyone else,. Without the interference of third parties.
“This is a new system which, however, is based on technologies that have been around for 35 years,” Papageorgiou said, adding that his company has approached the central bank and CySEC and has briefed the Finance Ministry “so that we can explain what this new technology is all about and the challenges involved, so as to make sure there is a proper regulatory environment.”
Soon after the parliamentary hearing, the Ministry of Finance and the Ministry of Energy, Trade and Tourism, as well as the Central Bank of Cyprus issued a statement pointing out the five key risks involved in bitcoin transaction of investing in the virtual currency.
The five dangers are: losing money used to acquire virtual currency either from a person which has this currency or from unprotected trading platforms, some of which have been subject to mismanagement and attacks from hackers; the virtual currency is deposited in a digital wallet on a computer or a smart phone, which is susceptible to hackers; for traders and investors, the virtual currency's value is subject to high volatility which may rise sharply or even fall to zero value; transactions with a virtual currency entail an increased risk and are more liable to be misused for illegal activities; and, the public should look into all risks associated with the use of virtual currencies.
A senior academic in the financial education sector, said that despite the high risks involved, there is an opportunity here for Cyprus.
“Our authorities, such as the financial services watchdog CySEC, should seriously consider regulating the sector, both to inform consumers about the risks involved and also to stay ahead of the pack as a jurisdiction that is trying to diversify its gamut of financial services.”