Latvijas Banka highlighted a decline in interest and use of cryptocurrency among Latvians in its “Financial Stability Report” for 2023. According to the central bank study, only 4% of people bought crypto assets, significantly lower than 8% in February 2022.

The reasons for this dropping trend in cryptocurrency investments are largely due to the poor perception of the sector, caused by multiple cases of fraud and insolvency. People’s past financial mistakes may have also deterred them from investing in digital assets.

Furthermore, the connection between cryptocurrency and money laundering is another significant worry. Alarms have been raised by regulatory agencies around the world regarding the possible exploitation of digital assets for illegal activities. This unfavorable reputation has discouraged many prospective investors from entering the market.

The survey also noted that the growing connections between crypto-asset startups and supervised financial sector actors have likely tempered enthusiasm for cryptocurrency investments.

The analysis examined credit card usage statistics to determine the level of adoption of cryptocurrencies. It showed that 51.8 million euros were transferred to cryptocurrency wallets by Latvians in 2022. However, in the first quarter of 2023, the rate of transfers drastically decreased to 10.7 million euros. It was noted that a sizable fraction of these transactions were done with businesses in other European nations, especially those with growing financial technology ecosystems like Lithuania, Estonia, Malta, and Ireland.

As for retail crypto payments, these continue to dominate in Latvia despite the drop in crypto investments. Most of these payments were modest, with 44% of them being for less than 60 euros and 97.5% for sums under one thousand euros.

While Latvian banks have started providing services such as custody and exchange connected to digital assets, the central bank expressed concern due to the new dangers associated with cryptocurrencies. It emphasized the significance of appropriate supervision and regulation to defend financial stability and consumer safety.

The cautious attitude Latvijas Banka has taken regarding digital assets is clear from the numerous public statements it has made about the risks and challenges involved. The bank made it clear that because of their highly volatile and unpredictable nature, cryptocurrencies are not regarded as legal money.

However, the paper also acknowledged the potential advantages of cryptography. It established a regulatory sandbox specifically for fintech companies researching blockchain and other cutting-edge technologies, actively promoting innovation in the industry. Additionally, the bank collaborated with the Bank for International Settlements, other central banks, and others on a global digital currency project.