CRYPTOCURRENCY MARKET DEVELOPMENT IN LATVIA AND THE BALTIC STATES

Keywords: cryptocurrency, blockchain, electronic money, government regulation, money laundering, investments

Abstract

The use of digital money creates not only threats, but also opportunities for economic development, but in Latvia and the Baltic countries, they are not sufficiently researched and not widely spread.

The paper aims to identify the reasons for the lagging behind of the Baltic countries and Latvia in the development of the cryptocurrency market and to develop recommendations for improving its regulation and functioning.

Based on the methods of cross-country, statistical and sociological analysis,

the national factors of differences in the functioning and regulation of cryptocurrencies in Latvia, Estonia, and Lithuania have been identified and the risks of its use for illegal activities have been assessed.

It is shown that the role of cryptocurrencies in the financial markets of the Baltic States is determined by the degree of their use for payments and investments, which depends on their recognition by the state and investors.

It has been revealed that the definition of the concept of cryptocurrency in the EU and the Baltic countries, primarily in the money laundering and terrorist financing (ML/TF) directives, does not stimulate the use of its positive features.

A correlation between the restrained attitude towards cryptocurrencies in Latvia and its large-scale business relations with the CIS countries with a higher proportion of shadow economy, caused by the peculiarities of its history and geographical location, has been revealed.

The Latvian banking system, under the influence of international regulators, has become less appropriate for operations of non-residents from the East, which increases the risk of using cryptocurrency for ML/FT purposes.

The factors of motivation, advantages and difficulties of the businessmen of the Baltic countries they face when dealing with cryptocurrency have been identified, and a discrepancy in the regulation of taxation of transactions with cryptocurrency and the respective activities in Latvia has been revealed.

Recommendations are given to the state and private investors pertaining to the integration of cryptocurrencies into the economic space, the implementation of which will contribute to the development of the digital economy and growth of wealth of Latvian residents.

The results of the study can be used to improve government regulation and private investments in the cryptocurrency market, as well as in the study and further research of this problem

Downloads

Download data is not yet available.

Author Biographies

Alexander Masharsky, Baltic International Academy

Professor Faculty of Economics, Finance and Management

Ivan Skvortsov, Baltic International Academy

PhD Student of the Doctoral study program

References

A global hub for blockchain-related services with an additional focus on community building and education. Blockchain Centre Vilnius. Retrieved 02.06.2020 from https://bcgateway.eu

A Regulatory Approach to Fintech. Finance & Development. June, 2018. Basel Committee warns banks on crypto asset exposures. FinExtra. Retrieved 12.04.2020 from https://www.finextra.com/newsarticle/33528/basel-committee-warns-banks-on-crypto-asset-exposures

Anastasiou, D., Ballis, A., Drakos, K. (2021). Cryptocurrencies’ Price Crash Risk and Crisis Sentiment. Finance Research Letters, 101928. https://doi.org/10.1016/j.frl.2021.101928

Blandin, A., Cloots, A., Hussain, H., Rauchs, M., Saleuddin, R., Allen, J., Zhang, B., & Cloud, K. (2019). The Global Cryptoasset Regulatory Landscape Study. Cambridge Centre for Alternative Finance,

Brauneis, A., Mestel, R., Riordan, R., & Theissen, E. (2021). How to measure the liquidity of cryptocurrency markets? Journal of Banking & Finance, 124, 106041. https://doi.org/10.1016/j.jbankfin.2020.106041

Caporale, G. M., Kang, W.-Y., Spagnolo, F., & Spagnolo, N. (2021). Cyber-attacks, spillovers and contagion in the cryptocurrency markets. Journal of International Financial Markets, Institutions and Money, 101298. https://doi.org/10.1016/j.intfin.2021.101298

Chemkha, R., Saïda, A. B., & Ghorbel, A. (2020). Connectedness between cryptocurrencies and foreign exchange markets: Implication for risk management. Journal of Multinational Financial Management, 100666. https://doi.org/10.1016/j.mulfin.2020.100666

Cvetkova, I. (2018). Cryptocurrencies legal regulation. BRICS Law Journal, 5(2), 128-153. https://doi.org/10.21684/2412-2343-2018-5-2-128-153

Designing a prudential treatment for cryptoassets. Basel Committee on Banking Supervision. Retrieved 18.04.2020 from https://www.bis.org/bcbs/publ/d490.pdf

Directive 2009/110/EC. Retrieved 14.03.2020 from https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32009L0110

Directive 2018/843/EU. Retrieved 05.05.2020 from https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32018L0843

Dzwigol, H., & Dzwigol-Barosz, M. (2020a). Sustainable Development of the Company on the Basis of Expert Assessment of the Investment Strategy. Academy of Strategic Management Journal, 19(5), 1-7.

Dźwigoł, H., & Dźwigoł-Barosz, M. (2020b). Determinants of the World Investment Market Development in the Context of Global Transformations. In K. S. Soliman (Ed.), Proceedings of the 36th International Business Information Management Association (IBIMA) (pp. 9109-9116). Granada, Spain: IBIMA Publishing.

Hendrickson, J. R., & William, J. L. (2021). Cash, crime, and cryptocurrencies. The Quarterly Review of Economics and Finance. https://doi.org/10.1016/j.qref.2021.01.004

Houben, R., & Snyers, A. (2020). Crypto-assets: Key developments, regulatory concerns and responses. European Parliament. Retrieved 23.06.2020 from https://www.europarl.europa.eu/RegData/etudes/STUD/2020/648779/IPOL_STU(2020)648779_EN.pdf

IMF Staff Discussion Note «Virtual Currencies and Beyond: Initial Considerations» 2016 Retrieved 23.03.2020 from https://www.imf.org/external/pubs/ft/sdn//sdn1603.pdf

James, N., Menzies, M., & Chan, J. (2021). Changes to the extreme and erratic behaviour of cryptocurrencies during COVID-19. Physica A: Statistical Mechanics and its Applications, 565, 125581. https://doi.org/10.1016/j.physa.2020.125581

Kwilinski, A., Vyshnevskyi, O., & Dzwigol, H. (2020). Digitalization of the EU Economies and People at Risk of Poverty or Social Exclusion. Journal of Risk and Financial Management, 13(7), 142. https://doi.org/10.3390/jrfm13070142

Law on the Prevention of Money Laundering and Terrorist and Proliferation Financing, р. 1.2.2. Legislation of the Republic of Latvia. Retrieved 25.05.2020 from https://likumi.lv/ta/id/178987-noziedzigi-iegutu-lidzeklu-legalizacijas-un-terorisma-un-proliferacijas-finansesanas-noversanas-likums

LBChain – the cradle of future technologies unrestricted by geographical or sectoral boundaries. Bank of Lithuania. Retrieved 02.06.2020 from https://www.lb.lt/en/news/lbchain-the-cradle-of-future-technologies-nrestricted-by-geographical-or-sectoral-boundaries

Marthinsen, J. E., & Gordon, S. R. (2020). Hyperinflation, Optimal Currency Scopes, and a Cryptocurrency Alternative to Dollarization. The Quarterly Review of Economics and Finance. https://doi.org/10.1016/j.qref.2020.12.007

Money Laundering and Terrorist Financing Prevention. Act Passed 26.10.2017. Estonian Anti-Money Laundering and Terrorist Financing Act, 27 November 2017.

Naeem, M. A., Bouri, E., Peng, Z., Shahzad, S. J. H., & Vo, X. V. (2021). Asymmetric efficiency of cryptocurrencies during COVID19. Physica A: Statistical Mechanics and its Applications, 565, 125562. https://doi.org/10.1016/j.physa.2020.125562

Naeem, M. A., Mbarki, I., & Shahza, S. J. H. (2021). Predictive role of online investor sentiment for cryptocurrency market: Evidence from happiness and fears. International Review of Economics & Finance, 73, 496-514. https://doi.org/10.1016/j.iref.2021.01.008

Scheau, M., Crăciunescu, S., Brici, I, & Achim, M. (2020). A Cryptocurrency Spectrum Short Analysis. J. Risk Financial Management, 13, 184. https://doi.org/10.3390/jrfm13080184

Tapscott, A., & Tapscott, D. (2016). Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World. London: Portfolio.

Tepper, A. (2015). The People's Money - Bitcoin. Melbourne: Asia-Australia Technology.

Vigna, P., & Casey, M. J. (2016). The Age of Cryptocurrency: How Bitcoin and the Blockchain Are Challenging the Global Economic Order. New York: St. Martin's Press.

Virtual Currencies: Key Definitions and Potential AML/CFT Risks. FATF Report. (2014). Retrieved 08.04.2020 from http://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf

Virtual currency schemes. (2012). Retrieved 04.03.2020 from http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf

Wątorek, M., Drożdż, S., Kwapień, J., Minati, L., Oświęcimka, P., & Stanuszek, M. (2020). Multiscale characteristics of the emerging global cryptocurrency market. Physics Reports. https://doi.org/10.1016/j.physrep.2020.10.005

Yermak, S., & Satanievska, M. Cryptocurrency Market: Problems and Development Prospects in Ukraine. Proceedings of the III International Scientific Congress Society of Ambient Intelligence 2020 (ISC-SAI 2020), 129, 248-256. https://dx.doi.org/10.2991/aebmr.k.200318.031

Press conference of September 7 (2017). Retrieved 02.06.2020 from https://www.ecb.europa.eu/press/pressconf/2017/html/ecb.is170907.en.html

Декрет Президента Республики Беларусь от 21 декабря 2017 г. № 8 «О развитии цифровой экономики». Retrieved 02.06.2020 from https://president.gov.by/ru/documents/dekret-8-ot-21-dekabrja-2017-g-17716

Информативный материал СГД о ПНН для виртуальной валюты. Интернет журнал «iFinanses». Retrieved 02.06.2020 from https://ifinanses.lv/ru/statji/aktualjno/aktualjno/informativnij-material-sgd-o-pnn-dlya-virtualjnoj-valyuti/14539

Леви, Д. А. (2016). Перспективы признания и развития криптовалют в Европейском Союзе и странах Европы. Управленческое консультирование, 9, 148-158.

Лелу, Л. (2017). Блокчейн от А до Я. Все о технологии десятилетия. Пер. с англ. Москва: Эксмо.

Международный семинар «Криптовалюты и блокчейн – феномен XXI века: регуляторные вызовы в контексте макроэкономической устойчивости ЕАЭС». Retrieved 05.04.2020 from http://www.eurasiancommission.org/ru/nae/events/Pages/13-06-0218-k1.aspx

Международный семинар «Страны ОЭСР и ЕАЭС: возможности сближения подходов к регулированию криптовалют и блокчейн». Retrieved 05.04.2020 from http://www.eurasiancommission.org/ru/act/integr_i_makroec/dep_makroec_pol/Pages/26072018.aspx

Обзор регулирования ICO. Deloitte Legal. Retrieved 02.06.2020 from https://www2.deloitte.com/content/dam/Deloitte/ru/Documents/legal/it-legal-drive/17-10-2017-1.pdf

Свон, М. (2015). Блокчейн. Схема новой экономики. Пер. с англ. Москва: ОлимпБизнес.

Стратегии и риски оборота криптовалюты. Электронная валюта в свете современных правовых и экономических вызовов. Cборник материалов Международной научно-практической конференции. Москва: Юрлитинформ.

Published
2021-01-31
How to Cite
Masharsky, A., & Skvortsov, I. (2021). CRYPTOCURRENCY MARKET DEVELOPMENT IN LATVIA AND THE BALTIC STATES. European Cooperation, 1(49), 7-22. https://doi.org/10.32070/ec.v1i49.104

Most read articles by the same author(s)