vcs could find themselves with a large and detrimental gap between their actual price and their optimal price. similarly, households cannot rely on vcs as a stable store of value to optimise their spending over time by saving. vcs have neither intrinsic value, such as the commodity content of gold coins, nor extrinsic value, such as the value assigned to traditional fiat currencies by the trusted public issuing authority. it is very clear that vcs currently do not fulfil the three basic functions of money : they are inefficient media of exchange, poor stores of value and are not used as units of account. it is these failures that make the label “ currency ” a misnomer. potential impact of virtual currencies yet even if vcs are not money, public authorities should still be aware of the potential risks they pose for financial stability – although currently these markets are too small to be of systemic importance. vcs are inherently risky compared to conventional financial assets. they are excessively volatile and illiquid due to the fragmented nature of unregulated exchanges and their high ownership concentration : 96 % of current bitcoin holdings are estimated to be held by 2. 5 % of users. this facilitates price manipulation and other misconduct and is further compounded by operational and technical weaknesses of the underlying technology3 yet, vcs do not appear to pose material financial stability risks. one reason is that they are small compared to the financial system as a whole. the market capitalisation of vcs was usd 432 billion in early 2018, about 1. 5 % of the market capitalisation of the s & p500. but the significant rise in the market valuation of vcs we saw prior to december 2017 calls for caution. if, in the future, such a boom led to a large enough vc market, it could become a factor 2 / 5 bis central bankers'speeches that affects financial stability in the event of a crash. such risks could intensify via several channels. wealth effects could disrupt financial stability not only through consumer spending but also through collateral valuation. if vcs were indeed used as collateral for loans, a fall in the value of such collateral could lead to margin calls and increased defaults, with knock - on effects on borrowing and economic activity. the effects of a crash could be further magnified if vc investors were highly leveraged4 not only would investors lack equity to absorb losses, but losses would also spread to creditors. moreover

credit? for 20 percent of owners, that ’ s yes ”, bloomberg, 7 february 2018. 5 the sec ’ s concerns relate, in particular, to how mutual funds or etfs propose to store, safeguard, and price vcs and how they would address elevated risks of fraud and manipulation. 6 “ ( … ) we acknowledge that technological innovation, including that underlying crypto - assets, has the potential to improve the efficiency and inclusiveness of the financial system and the economy more broadly. crypto - assets do, however, raise issues with respect to consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. crypto - assets lack the key attributes of sovereign currencies. at some point they could have financial stability implications. ( … ) ”, see the g20 communique of finance ministers and central bank governors. 7 for instance by amending or broadening existing frameworks, such as the revised payment services directive ( psd2 ) : directive ( eu ) 2015 / 2366 of the european parliament and of the council of 25 november 2015 on payment services in the internal market, amending directives 2002 / 65 / ec, 2009 / 110 / ec and 2013 / 36 / eu and regulation ( eu ) no 1093 / 2010, and repealing directive 2007 / 64 / ec ( oj l 337, 23. 12. 2015, p. 35 ). 8 principle 9 of the cpmi / iosco principles on financial market infrastructures ( pfmis ). 5 / 5 bis central bankers'speeches