The Bank of England has called for crypto currencies to be regulated as a “matter of urgency” warning that a market crash is “plausible.”
Speaking at the SIBOS conference yesterday, Jon Cunliffe, deputy financial stability officer for the UK’s central bank said that crypto poses a rapidly growing threat to the global economy. A crypto market crash has the potential to send shockwaves through the financial system Cunliffe warned as he underscored the need for far-reaching regulation.
“Regulators internationally and in many jurisdictions have begun the work,” said Cunliffe. “It needs to be pursued as a matter of urgency.”
“A massive collapse in cryptoasset prices, similar to what we have seen in tech stocks and sub-prime, is certainly a plausible scenario,” Cunliffe added, explaining that the “bulk of these assets have no intrinsic value and are vulnerable to major price corrections.”
The size of the global crypto market has swelled by almost 200 per cent in 2021, rising from $800bn (£586bn) to stand above $2.3tn today.
While crypto markets make up a tiny proportion of the $250tn global financial system Cunliffe pointed out that the 2008 financial crash was triggered by issues with the $1.2tn sub prime market which made up a far smaller segment of the market than crypto.
Cunliffe’s comments come as the IMF raised alarm bells about the threat posed to the global economy by crypto assets in its latest Financial Stability Report.
The IMF cautioned that while the risks posed by crypto are “not yet systemic” the situation should be “closely monitored” by governments which still use “inadequate operational and regulatory frameworks” to manage digital assets.
Adding to the Bank of England’s sense of urgency the report warned that growing crypto adoption could weaken the role of central bank money, facilitate tax evasion and destabilise capital flows.
Charles Kerrigan, a FinTech partner with the law firm CMS responded to the speech, urging regulators to catch up with technological innovation in the crypto space.
“Jon Cunliffe is quite right that this is an urgent issue,” he said. “Innovation in crypto is the fruit of years of work by some of the most talented engineers on the planet. The industry is not by and large against regulation. But this technological revolution won’t wait for the regulators.”