In a speech last October 13, the Bank of England policymaker for financial stability, Jon Cunliffe, warned that the lack of stricter regulations on the crypto market can trigger a financial meltdown. Cunliffe compared the destabilizing influence of cryptocurrency to the subprime collapse of 2008, saying that, ‘In that case, the knock-on effects of a price collapse in a relatively small market was amplified and reverberated through an un-resilient financial system causing huge and persistent economic damage.’
However, despite these warnings, the BoE policymaker has urged governments and regulators not to overreact and label novel financial approaches as risky simply because they are unconventional. He also acknowledged that digital assets offer radical improvements in the industry of finance.
However, Cunliffe argued that because cryptocurrency is infiltrating traditional banks and growing with the participation of big players in an unregulated market, systemic risks are bound to get more serious in the long run. With this, Cunliffe suggested that tougher measures should be taken with a matter of urgency.
‘When something in the financial system is growing very fast, and growing in largely unregulated space, financial stability authorities have to sit up and take notice’, said Cunliffe.
According to Cunliffe, regulators such as the UK’s Cryptoassets Taskforce have already begun working to make new approaches in regulating cryptocurrencies like Bitcoin.
The BoE policymaker’s sentiments were echoed by Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown. She believes that once the crypto market comes crashing down, its consequences could be devastating on a large scale.
‘Regulators and central banks are walking a tricky tightrope, recognising the need to foster new decentralised payments technology but ensuring enough rules are in place to prevent runaway speculation infecting the wider financial sector’, Streeter explained.
This recent statement from the Bank of England was prompted by the call to action in September from the chair of the Financial Conduct Authority, Charles Randell. The FCA was alarmed after Kim Kardashian’s Instagram post for Ethereum Max, blurring the line between social media and the crypto world.
‘The FCA has repeatedly warned about the risks of holding speculative tokens. These tokens are not regulated by the FCA. They are not covered by the Financial Services Compensation Scheme. If these tokens are purchased investors should be prepared to lose all of their money’, Charles Randell said in a speech last September 6, 2021.
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