Bank of England officials warn that cryptography could cause a 2008-level meltdown.


A passage near the Bank of England (BOE) in London, England, Thursday, March 18, 2021.

Holly Adams | Bloomberg | Getty Images

John Cunliff, Deputy Governor of Financial Stability at the Bank of England, warns that cryptocurrencies can cause a global financial crisis unless strict regulations are introduced.

In a speech Wednesday, Cunliffe likened the growth rate of the crypto asset market from $ 16 billion five years ago to $ 2.3 trillion today and the $ 1.2 trillion subprime mortgage market in 2008.

“When something in the financial system grows very rapidly and grows in an almost unregulated space, financial stability authorities have to stand up and pay attention,” he said.

Cunliffe acknowledges that governments and regulators need to be careful not to overreact or classify as “dangerous” simply because the new approach is different, and cryptography is the “fundamental” of financial services. He said it would provide a “improvement” outlook.

However, he said that while financial stability risk is currently limited, the current application of crypto assets is because the majority “have no intrinsic value and are vulnerable to major price adjustments”. He argued that it would raise concerns about financial stability.

The two largest cryptocurrencies, Bitcoin and Ethereum, have proven to be very volatile since their creation, with their value plummeting by more than 30% earlier this year before they recover. Prices are vulnerable to a variety of external triggers, from comments by Tesla CEO Elon Musk to crackdowns on regulations by the Chinese government.

“The world of cryptocurrencies is beginning to connect to the traditional financial system, and we see the emergence of leveraged players, and decisively, this is happening in an almost unregulated space,” Cunliffe said. Told.

His comments are the same as those of Bank of England Governor Andrew Bailey in May. He warned that crypto investors need to be prepared to lose all their money because of the lack of “intrinsic value” of their assets.

The UK’s Financial Conduct Authority has also warned of the dangerous nature of crypto investment.

Cunliffe said that if the market continues to grow at this pace, the risks to financial stability could rise rapidly, but the magnitude of these risks depends on the speed of response by regulators and governments. Will be decided.

He pointed out that Bitcoin prices have fallen 10% in a day almost 30 times in the last five years. The biggest is to exchange Seychelles-based Bitcoin for BitMEX, which has fallen almost 40% after the cyber incident in cryptocurrencies.

“The future-looking question is, what could come from such an event if these crypto assets continue to grow on a large scale, continue to integrate into the traditional financial sector, and invest strategies continue to become more complex. Is there? “Cunliffe said.

Avoiding the impact of knock-ons on the real economy, while suffering some investors with painful losses, is central to whether major price adjustments are absorbed by the system, primarily interconnectivity and leverage. Cunliffe argued that it relied on.

Cunliffe suggested that both of these existed in the subprime mortgage market before 2008, ultimately enabling a knock-on effect that would yield the global economy, and both are becoming more and more prominent in crypto space. .. He said it was the responsibility of the authorities to manage this increasing risk and ensure that the system was resilient to major modifications.

“Cryptocurrencies operate in a novel way, but with well-designed standards and regulations, risk is managed in the traditional financial world, so it may be manageable in the crypto world.” Said Cunliffe.

Many regulators around the world have begun work to establish a public policy framework for managing the exponential growth of crypto assets, but Cunliffe needs to pursue this as an urgent issue. Said.

“Technology and innovation have driven financial improvements throughout history. Cryptographic technology offers great opportunities. [Ralph Waldo] “If you build a better mouse trap, the world will beat the way to your door,” Emerson said.

“But it needs to be a really good mousetrap, it doesn’t work just by lowering the standard, it needs to be completely unstandard.”

Bank of England officials warn that cryptography could cause a 2008-level meltdown

Source link Bank of England officials warn that cryptography could cause a 2008-level meltdown


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