Bank of England wants stricter rules for crypto to avoid “systemic risk”

by Arthur · July 5, 2022

The Bank of England today called for better regulation of cryptocurrencies, noting “vulnerabilities” in the market.

The Bank of England’s Financial Stability Report published on Tuesday states so that “the value of cryptocurrencies has fallen sharply,” plummeting from a peak of nearly $ 3 trillion last year to $ 883 billion, it is now.

It said that although this annihilation “did not pose a risk to financial stability in general”, stricter laws are needed to protect the wider financial system in the future.

“A number of vulnerabilities were identified in cryptocurrencies markets similar to those exposed to previous episodes of instability in more traditional parts of the financial system,” the report said.

“These events posed no risk to financial stability in general. However, unless addressed, systemic risks will arise if the activity of cryptocurrencies, and its relationship with the wider financial system, continues to evolve,” it added, noting that stronger law enforcement and regulations are needed.

BoE has been talking a lot about cryptocurrency lately. In December it warning that the industry may pose a threat to the established financial system.

But in April, the British government announced plans to become a “global technology hub for cryptocurrencies” – with stable coins used “as a recognized means of payment.” The Bank of England has since so that it would intervene to lead and monitor collapsing stack coins.

A stablecoin is a digital asset meant to be more stable than cryptocurrencies such as Bitcoin or Ethereum – which both fluctuate wildly up and down in price. Stablecoins, considered by many to be the backbone of the cryptocurrency ecosystem, are pegged to fiat currencies such as the US dollar to prevent fluctuations and help traders maintain liquidity. These coins maintain their sticks in various ways, with some like Tether and Circles USDC allegedly having similar assets in reserve.

Although perhaps the biggest crypto story this year so far was eerie crash of the Terra ecosystem– A DeFi (decentralized finance) protocol that became virtually worthless within a few days when its stablecoin, an algorithm currency that relied on code to keep the price stable, lost the link, and hit investors and the wider market hard.

In today’s report, the BoE again said that such assets must be regulated. “In the absence of further regulation, some stack coins held to be used for payments may not provide similar protection as central bank or commercial bank money,” it added.