In its recent “Financial Stability Report” for 2023, Latvijas Banka has shed light on the declining interest and use of cryptocurrencies among Latvians. The study reveals that only 4% of the population purchased crypto assets, marking a significant drop from the 8% observed in February 2022.

One of the primary reasons contributing to the waning interest in cryptocurrencies is the negative perception surrounding the sector. Instances of fraud and insolvency among key market players have amplified the lack of trust and faith in digital assets. Such incidents have fostered skepticism among potential investors, dampening their enthusiasm for cryptocurrency investments. The history of poor financial decisions also plays a role in this decline.

The association between cryptocurrencies and money laundering remains a significant concern. Regulatory bodies worldwide have raised alarming alerts about the potential exploitation of digital assets for illicit activities. This unfavorable reputation surrounding cryptocurrencies may have discouraged numerous prospective investors from entering the market, further contributing to the declining trend.

The growing connections between crypto-asset startups and regulated financial sector actors have also impacted cryptocurrency adoption. Some individuals may view this link as a risk to the stability of their finances, leading them to hesitate in engaging with the cryptocurrency market.

A study of credit card usage statistics reveals a decline in the adoption of cryptocurrencies. In 2022, Latvians transferred approximately 51.8 million euros to cryptocurrency wallets. However, in the first quarter of 2023, this figure drastically decreased to 10.7 million euros. Interestingly, a significant portion of these transactions was carried out with businesses in other European countries, particularly those with burgeoning financial technology ecosystems like Lithuania, Estonia, Malta, and Ireland.

While retail crypto payments still prevail in Latvia despite the reduced interest in crypto investments, these payments tend to be modest in value. The survey indicates that 44% of all retail cryptocurrency payments are for amounts less than 60 euros, with 97.5% of transactions falling below one thousand euros. Latvijas Banka emphasizes the significance of appropriate supervision and regulation to safeguard financial stability and consumer safety. The bank views cryptocurrencies as highly volatile and unpredictable, considering them outside the realm of legal tender.

Despite its cautious approach to digital assets, Latvijas Banka recognizes the potential advantages of cryptography. In an effort to promote innovation in the industry, the central bank has established a regulatory sandbox specifically for fintech companies exploring blockchain and other cutting-edge technologies. Additionally, Latvijas Banka collaborates with the Bank for International Settlements, other central banks, and global partners on projects related to digital currencies.

The “Financial Stability Report” by Latvijas Banka reveals the decline in interest and adoption of cryptocurrencies among Latvians. The negative perception, association with money laundering, and connections between crypto startups and regulated financial sector actors are identified as the significant factors contributing to this decline. While Latvijas Banka maintains a cautious stance on cryptocurrencies, promoting appropriate supervision and regulation, it also recognizes the potential benefits of cryptography and actively supports innovative initiatives in the industry.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.