regulating crypto products. nonetheless, we have been examining their potential impact on the stability of canada ’ s financial system. we ’ ve also been participating in international research on them, through the financial stability board ( fsb ), g20 and g7. regulators need to examine cryptoassets from a number of angles : • • • the potential risks to the stability of the financial system, the integrity of markets and protection of investors, and protection against abusive financial flows such as money laundering and terrorist financing. the consensus of policy - makers is that crypto products do not yet pose financial stability risks. 10 this is in part because, despite their rapid growth, crypto products have a relatively small footprint in the financial system. the market capitalization of all cryptoassets was recently estimated at $ 230 billion and the volume of trading in these products at about $ 15 billion annually. while these seem like big numbers, they are dwarfed by other global financial markets : global equity markets alone have a market capitalization of around $ 100 trillion. moreover, crypto products are not deeply interconnected with the mainstream financial system. for example, there is little evidence that commercial banks are investing in cryptoassets or accepting them as collateral. in this context, the immediate priorities are to address the other two issues i mentioned : investor protection and abusive financial flows. in these areas, the relevant regulators are working hard to adapt their frameworks to cover these new products. but things are evolving rapidly. cryptoassets are growing in size, complexity and interconnectedness. as the underlying technologies and the design of crypto products evolve, we need to be ready to reassess how they might affect financial stability. some potential aspects include the integrity of payment systems, bank business models, and the exposures of financial institutions and infrastructures. the fsb and related bodies are monitoring this evolution closely. 9 in such cases the crypto exchange holds the only copy of the key to the client ’ s cryptoassets. the cryptoassets are thus accessible only to the exchange ; the investor holds a claim on the exchange. 10 see the recent fsb report and letter from the fsb chair to g20 finance ministers and central bank governors. - 7regulators also have to be forward - thinking about what kind of action may be required. that means putting in place a framework that is sufficiently adaptable so when new products emerge that potentially pose new risks, regulatory agencies will

remarks by timothy lane deputy governor of the bank of canada haskayne school of business university of calgary calgary, alberta october 1, 2018 decrypting “ crypto ” introduction good afternoon. some of you here today may have purchased bitcoins or one of the other cryptocurrencies or products that have launched in recent years. i ’ m not here to give you investment advice about them. rather, i want to share with you our current thinking about these virtual products. investors worldwide have taken an increasing stake in them over the past few years, even as their market values have fluctuated widely. around 2, 000 crypto products are now available, with dozens more launching every month. 1 trading volumes have grown almost 100 - fold in just the past two years. media interest in them has inflated at a similar pace, often including a thick layer of hype. the recent collapse in the market valuations of many cryptoassets — almost 40 per cent of those originally launched are now worthless — seems to have done little to dampen enthusiasm. 2 some investors see these products as potentially world - changing ; others as an example of “ popular delusions and the madness of crowds. ” 3 possibly both are right. new financial or technological innovations often ignite market bubbles as users race to discover their most popular and profitable applications. think of the “ dot - com ” bubble of the late 1990s, when prices of many internet - related stocks shot into the stratosphere. while that period ended in tears for many investors, a handful of new companies that rose at that time, such as google and amazon, have brought about profound changes in the way we work, play, shop and live. the bank of canada is not responsible for regulating these crypto products. indeed, the term “ cryptocurrencies ” is a misnomer. we prefer to call them 1 see coinmarketcap. com. 2 there is now even a website, deadcoins. com, that lists the failed cryptoassets and the reasons they collapsed. 3 c. mackay, memoirs of extraordinary popular delusions and the madness of crowds ( london : richard bentley, 1841 ). i would like to thank james chapman and scott hendry for their help in preparing this speech. not for publication before october 1, 2018 1 pm eastern time - 2 “ cryptoassets ” because, as i will discuss in a moment, they don ’ t do a good job of performing the