Deputy Governor of the Bank of England Jon Cunliffe believes that a cryptocurrency market crash is “quite likely,” and that regulators around the world should seek crypto legislation “immediately.” While cryptocurrencies do not presently present a risk to the country’s financial stability, the deputy governor believes there are some “quite solid reasons” to believe this may change in the near future.
At the SIBOS conference on Wednesday, Bank of England Deputy Governor Jon Cunliffe discussed cryptocurrencies and its regulation. Given the rapid expansion of the business and the time it takes to implement new laws, he stressed that authorities around the world must work rapidly to adopt rules to control cryptocurrencies.
Cunliffe cited last week’s proposal by worldwide regulators that the safeguards used to major clearing houses and payment systems be implemented to stablecoins as an illustration of how long it takes to establish new laws. He went on to say that drafting this measure took 2 years, during which time stablecoins grew 16-fold.
“As the financial crisis had shown us, you don’t have to compensate for a large ratio of the finance industry to trigger financial stability issues – sub-prime was recognised at around $1.2 trillion in 2008,” Cunliffe said, pointing to the breakdown of the US mortgage market, which led to a worldwide banking crisis.
“Despite the lack of real value and resulting price volatility, the chances of the outbreak between cryptocurrency, cyber and operational hazards, such a collapse is unquestionably a plausible outcome. and, of course, the privilege of herd behaviour,” he said in an speech at the SIBOS meeting.
As the market capitalization of cryptocurrencies exceeds $2 trillion this year, the embryonic field remains mostly unregulated as regulators around the world try to figure out how to improve oversight. Click here to learn more about Cryptocurrency Trading in the UK
In a report released Tuesday, the International Monetary Fund cautioned of rising hazards in the space, involving fraud, excessive speculation, and potential “runs” on supposedly more safe assets. However, in September, China announced a near-total ban on all cryptocurrency transactions.
Cunliffe equated the cryptocurrencies market to the US mortgages, which brought the worldwide economy to its knees in 2008, noting that the sub-prime market was valued $1.2 trillion at the time.
He also focused on decentralised finance, or DeFi, stating that England’s central bank has began working on risk management and consumer protection. DeFi is an umbrella word for a variety of apps that leverage public blockchains as well as cryptocurrencies to challenge traditional financial sectors, including borrowing, lending, saving, trading stocks, options and derivatives.
However, he sees cryptocurrencies as having promising a future, but only if clear laws are implemented fast.
“In addition, incorporating the cryptocurrency market into the regulatory framework will assist to ensure that the potentially enormous benefits of this technology’s utilization in banking can rise in a durable manner,” he stated. “It should be examined as quickly as possible.”
The Bank of England has released a paper claiming that the risks posed by cryptocurrencies to the financial stability of the United Kingdom are now minimal. Cunliffe has stated previously that the cryptocurrency industry does not represent a danger to the country’s economic stability. He did say, though, at the meeting on Wednesday that there are now some “quite solid grounds” to believe that this won’t be the case for much longer.
The International Monetary Fund (IMF) has released a report warning that the increasing popularity of cryptocurrency poses a risk to economic stability, calling governments around the world to ramp up and collaborate to adopt common regulations to control cryptocurrencies.