Crypto assets market ‘poses threat to global financial stability’
The booming crypto assets market could pose a serious threat to financial stability if regulators fail to take action, a global watchdog has cautioned.
The Financial Stability Board (FSB), which monitors financial authorities in 24 countries, is concerned that the scale and structural vulnerabilities of crypto markets – as well as increasing interconnectedness with traditional financial systems – have the potential to cause significant disturbance to the global economy.
“Although the extent and nature of use of crypto-assets varies somewhat across jurisdictions, financial stability risks could rapidly escalate, underscoring the need for timely and pre-emptive evaluation of possible policy responses,” the Swiss-based body said in a new report.
“Systemically important banks and other financial institutions are increasingly willing to undertake activities in, and gain exposures to, crypto-assets. The prevalence of more complex investment strategies, including through derivatives and other leveraged products that reference crypto-assets, also has increased.
“If the current trajectory of growth in scale and interconnectedness of crypto-assets to these institutions were to continue, this could have implications for global financial stability.”
The report estimated that crypto asset market capitalisation grew 3.5 times in 2021 to a value of $2.6tn. It noted that crypto assets remain a small part of the overall financial system, but likened the risk to the subprime mortgage exposure that sparked the financial crisis of 2007-8.
“If financial institutions continue to become more involved in crypto-asset markets, this could affect their balance sheets and liquidity in unexpected ways,” the FSB continued.
“As in the case of the US subprime
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