“There is clearly a higher degree of urgency,” Klaas Knot, the Dutch central bank governor who became chairman of the Basel-based council in December, said, describing how the board had previously been “comfortable” saying it would not there was material risk in this market due to its size and lack of connectivity to traditional financial markets.
“Not only has there been a rapid increase in scale, but also the contact points with traditional financial intermediation have increased and therefore need more attention from the Financial Stability Board,” he added. Some parts of the cryptocurrency market, and its connections to the rest of the financial system, are difficult to assess due to “significant data gaps,” the agency said.
“That would mean that we could only be seeing the tip of the iceberg in terms of capitalization, which poses a danger to the surveillance of financial stability.”, he analyzed.
Cryptocurrencies have been met with various measures by global regulators so far, including a severe crackdown in China and efforts by Spain or the UK to restrict cryptocurrency advertisements and register crypto firms to comply. with the regulations on money laundering and the fight against terrorism.
The Financial Stability Board is working on global standards for digital assets, which Knot says should be “well advanced by 2022.” “There is a strong push from all jurisdictions who feel these risks are rapidly evolving.”he explained “If you have a server, you can take it under your arm and put it anywhere in the world and start issuing these assets, right?”, he ironically.
Among the consequences, he highlighted that they can generate “liquidity mismatches, credit and operational risks that make stablecoins susceptible to sudden and disruptive runs on their reserves, with the potential to spread to short-term funding markets; the increased use of leverage in investment strategies; concentration risk of trading platforms; and the opacity and lack of regulatory control of the sector”.
The market value of crypto assets such as Bitcoin and Ethereum jumped from about $350 billion in early 2020 to more than $3 trillion last year. It has since fallen to just over $2 trillion.
Source: Ambito
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