The Bank of England’s (BoE) Financial Policy Committee believes that the crypto industry requires more stringent regulations, as the crypto market cap has dropped from nearly $3 trillion in late 2021 to $900 billion in six months, exposing market vulnerabilities.
According to the central bank, the extreme volatility highlights flaws such as liquidity mismatches, which have caused leveraged positions to unwind, as well as fire sales of crypto assets.
While posing a significant risk to the market, the current volatility in crypto prices, according to the BoE, does not yet pose a risk to the overall financial system.
It did, however, warn that inaction would result in systemic risks as the crypto market’s link to banks and other markets grows.
A/C to Bank:
“This underscores the need for enhanced regulatory and law enforcement frameworks to address developments in these markets,”
The BoE on volatility
The Bank of England has previously discussed the potential of the cryptocurrency market while also expressing concern about volatility.
Deputy Governor for Financial Stability at the Bank of England Jon Cunliffe stated about the industry’s potential: “I expect crypto technology and finance to continue because it has the possibility of huge efficiencies and changes in market structure”. However, because of its volatility, he continued, crypto is nowhere near being properly integrated with the traditional system.
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