Regulators suggest for a global response to end crypto risks

Regulators suggest for a global response to end crypto risks

Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, have recently hinted that risks from the US$2.6 trillion crypto market could rapidly grow, and regulators need some prepared measures for bringing the sector back to heels.

Crypto assets like Bitcoin endure a small portion of the financial system and data gaps cause difficultly in examining their full use, with many investors not fully aware of what they are buying, said the FSB.

The old-style finance such as hedge funds and big banks are also becoming more and more involved, along with the derivatives, which refer to crypto assets in complex investment strategies.

Consequently, financial stability risks may rapidly worsen, emphasizing the need for timely and pre-emptive assessment of possible policy responses, said the report in acclimatization of earlier FSB statements that witnessed cryptocurrency as a little posing threat.

If the current course of growth in interconnectedness and scale of crypto assets to these institutions continued, then this could have affected the global financial stability, it said.

Regulators are concerned about how a breakdown in crypto assets markets, a highly volatile but opaque market, would feedstuff into the broader financial sector.

Reportedly, a sharp drop in Bitcoin and Ether was seen last May after China stiffened curbs on crypto demonstrated yields on standard US and German government bonds fall, as the investors discarded digital tokens for professed safe-haven assets.

In October, Jon Cunliffe, Bank of England Deputy Governor, said that a breakdown in cryptocurrencies was a "plausible scenario."

Moreover, DeFi has gained traction during the COVID-19 outbreak as rock-bottom interest rates push investors to search for yield. Also, DeFi is a lodestone for scams and other misconducts, putting up additional challenges for regulators.

Source Credit -