For many years, Estonia was a "crypto paradise" due to a lack of regulation but the situation has changed radically over the last year, Tuesday's "Aktuaalne kaamera" (AK) reported.

Last June, an estimated 55 percent of the world's crypto companies were registered in Estonia, AK said.

"Today we have reached a situation where we have about 160 virtual currency providers left. At the beginning of 2019-2020, there were about 2,000 of them. In June 2021, when I took office, there were 640, and today we are down to 166," said the head of the FIU, Matis Mäeker.

Mäeker says there were two reasons behind the influx, the desire to expand the e-Residency scheme and the Money Laundering and Terrorist Financing Prevention Act (2017) which did not foresee that favorable conditions would attract criminals. 

"It's true that quite a lot of e-Residents are behind these virtual currency providers. There is not a one-to-one correlation between the two, but the e-Residency program has certainly facilitated this growth and also the arrival of these risks in Estonia and their realization here," Mäeker told AK.

"All these clients come from other countries and so all the risk that we take as the Estonian state, such as the reputational risk, stays with us and the revenue goes to other countries and criminals can take advantage of us. /.../ Of course, I cannot comment on specific cases, but I can say that this is neither the first nor the last of these cases," he said.

Recently, there have been several signs the "crypto bubble" is bursting both in Estonia and abroad.

Bank of Estonia economist Peeter Luikmel said it is the realization of two-long forewarned risks.

"Cryptoassets that are not cryptocurrency have zero intrinsic value. There is no issuer responsible for anything, and the price has started to fall. And the other side of it is that not all of the operating intermediaries are honest," he told AK.

He said strengthening existing regulations would not be useful because it would not reduce investment risks and could even lull people into a false sense of security.

The bank disagrees that investing in cryptocurrencies is similar to investing in gold or other commodities, as some crypto fans say.

"We shouldn't compare virtual assets to a company or a commodity or a metal, because they really aren't [the same]. The only value a virtual asset has is that the next person is willing to pay something for it," said Luikmel.

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