The Financial Stability Board (FSB), an international body that monitors and makes recommendations to the Group of 20 (G20) nations on the global financial system, is calling for urgent action to contain the risks posed by cryptocurrencies, such as bitcoin ( BTC), for global financial stability.
At report that the agency published yesterday, expresses concerns about the speed with which the cryptocurrency market is evolving. As well suspects there could come a point where crypto assets become a threat for global financial stability.
Because Bitcoin emerged as an alternative model to the banking system, the institutions that regulate the financial markets continue to debate the restrictions that should be placed on this technology. However, financial institutions large and small, such as banks and hedge funds, increasingly engage with cryptocurrencies in complex investment strategieswhich represents a risk in the eyes of the FSB.
Given this, the body that brings together regulators, central banks and officials from the G20 finance ministries, called on policymakers to act quickly in the elaboration of rules that cover the digital asset market, given the increasingly close link they have with the traditional financial system.
The report examined vulnerabilities in three aspects of crypto asset markets, including “unbacked currencies” such as bitcoin; stablecoins, such as tether (USDT), which are backed by reserve assets. It also mentions Decentralized Finance (DeFi) and cryptocurrency trading platforms. to the board is concerned that these decentralized services exist only online and are not regulated by a centralized body.
For cryptocurrency and DeFi trading platforms, one of the risks to consider is the increasing amount of centralized activity in a small portion of crypto exchanges and lending platforms, which tend to operate in offshore jurisdictions.
Ultimately, it is the concentration, the mix of functionalities, such as lending and custody, and the lack of oversight and regulatory transparency that trigger the board’s concerns.
Urgency to contain the risk that Bitcoin represents: a change of position
Klaas Knot, the governor of the Dutch central bank who is the current president of the FSB, said that lawmakers need to turn their attention to Bitcointoday more than ever.
We clearly have a higher degree of urgency now because we are seeing a rapid increase in the scale of adoption, and touch points with traditional financial intermediation are also increasing. Therefore, this is something that requires attention from the FSB.
Klaas Knot, president of the FSB.
This represents a change in position for the board which, until now, has been happy to note that bitcoin and other cryptocurrencies did not represent a risk for the traditional financial market, as CriptoNoticias reported at the time.
Everything has changed this year, now that the regulator warns that the collapse of a large cryptocurrency, such as bitcoin, could have a huge impact by causing a crisis of confidence in other asset classes. Knot added that it was impossible to predict the “destabilizing effect on the entire financial sector,” even if it was a single crypto asset.
If a stablecoin were to fail, it is possible that liquidity within the cryptocurrency ecosystem could be limited, disrupting trading and causing stress in those markets. This could also spill over into financial markets in the near term if stablecoin reserves were to be liquidated in a disorderly manner.
Report of the Financial Stability Board.
to the body as well is concerned about the lack of regulatory oversight against money launderingcybercrime and ransomware involving cryptocurrencies and the risks they pose to the global financial system.
Although the overall market capitalization of the cryptocurrency sector today is $2.6 billion, it still represents a small part of the world’s total financial system, although it is clear that it will continue to grow rapidly. Therefore, regulators must be prepared to face any challenge, as indicated by the FSB.
The FSB report leaves enough signs to understand that the regulators will do their maximum effort so that cryptocurrencies, such as bitcoin, do not escape from the control of the State. Given this scenario, the defenders of the traditional financial system seem to be promoting a global regulatory framework to regulate the cryptoactive industry.
In that sense, the European Commission also asked to regulate bitcoin as soon as possible. This after the European Securities and Markets Authority (ESMA) qualified the pioneering cryptocurrency and others as risky assets.