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Financial Stability Board: Cryptocurrency could destabilize global markets

Feb 16, 2022

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Financial regulators warned Tuesday that cryptocurrencies could be a threat to the stability of global markets. The Financial Stability Board is an international group tasked with assessing systemic risk, and in an updated risk assessment, members concluded that the fast-evolving cryptocurrency market could be a threat, “due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system.”

It’s an about face from the group’s previous assessment in 2018, which concluded that crypto assets did not pose the risk to destabilize. However, when that report was released, the crypto market as a whole was valued at about $300 billion. Today, the total market cap hovers around $2 trillion.

FSB said in the report that financial risks could escalate rapidly, calling for “timely and pre-emptive evaluation of policy responses.” The group highlighted risks like the low level of investor understanding of the space, along with frequent concerns among crypto critics: money laundering, cyber crimes and ransomware.

Congress and the Biden administration have struggled with how to regulate cryptocurrencies and FSB noted the regulatory gaps only widen the faster crypto grows. Institutional banks are also pushing for more clarity in the space, while CEOs of major crypto firms want guidance crafted by those in the industry.

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SIMONE DEL ROSARIO: ARE CRYPTOCURRENCIES A THREAT TO FINANCIAL MARKETS? THAT’S THE WARNING TODAY FROM GLOBAL REGULATORS.

THE FINANCIAL STABILITY BOARD IS AN INTERNATIONAL GROUP TASKED WITH ASSESSING SYSTEMIC RISK. 

AND TODAY THEY TOOK TO TASK – CRYPTO ASSETS. SAYING THE FAST EVOLVING MARKET COULD BE A THREAT “DUE TO THEIR SCALE, STRUCTURAL VULNERABILITIES AND INCREASING INTERCONNECTEDNESS WITH THE TRADITIONAL FINANCIAL SYSTEM.” 

IT’S AN ABOUT FACE FROM THE GROUP’S PREVIOUS ASSESSMENT IN 2018 – WHICH CONCLUDED CRYPTO DID NOT POSE THE RISK TO DESTABILIZE. 

BUT THEN, THE CRYPTO MARKET WAS VALUED AT ABOUT $300 BILLION. TODAY, ITS MARKET CAP IS OVER TWO TRILLION. 

F-S-B SAYS THE FINANCIAL RISKS COULD ESCALATE RAPIDLY, CALLING FOR “TIMELY AND PRE-EMPTIVE EVALUATION OF POLICY RESPONSES.”

THEY NOTED THE FASTER CRYPTO GROWS, THE MORE PREVALENT THE REGULATORY GAPS. AMONG THE RISKS, THEY HIGHLIGHTED THE LOW LEVEL OF INVESTOR UNDERSTANDING OF THE SPACE, ALONG WITH FREQUENT CONCERNS AMONG CRYPTO CRITICS – MONEY LAUNDERING, CYBER CRIMES, AND RANSOMWARE. 

AS CONGRESS AND THE BIDEN ADMINISTRATION CONTINUE TO STRUGGLE WITH HOW TO REGULATE CRYPTO, BANKS ARE PUSHING FOR MORE CLARITY IN THE SPACE, WHILE CEOS OF CRYPTO FIRMS WANT GUIDANCE CRAFTED BY THOSE IN THE INDUSTRY. 


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