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This Organization Wants to Regulate Cryptocurrencies Citing Alleged ‘Risk’; Will They Succeed?

Bitcoin, El American

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The Financial Stability Board (FSB) wants crypto asset markets to be regulated. The FSB, whose secretariat is located in the Swiss city of Basel, said Monday that “cryptoassets and cryptomarkets should be subject to effective regulation and oversight commensurate with the risks they generate, domestically and internationally.”

According to the FSB, bitcoin is a risk to financial stability worldwide because of its rapid growth.

“The failure of one market participant can quickly transmit risks to other parts of the cryptoasset ecosystem,” in addition to generating large losses to investors and threatening confidence in the market, according to the FSB.

Contagion to short-term funding markets can occur.

Effective regulation must therefore ensure that if cryptoassets create similar risks to other assets in traditional finance, they are subject to the same regulation.

The market capitalization of cryptoassets rose last year to about $2.6 trillion, three and a half times higher than in 2020.

Stable cryptocurrencies are mainly used as a bridge between fiat money and cryptoassets.

If a major stable cryptocurrency were to collapse, it is possible that liquidity in the broader cryptoasset ecosystem would contract disrupting trading and creating stresses in these markets, which could spill over into short-term funding markets if the reserves held by stable cryptocurrencies are liquidated in a disorderly manner.

The FSB will brief finance ministers and central bank governors of G20 countries in October on its recommended regulatory and supervisory recommendations for stable cryptocurrencies and other cryptoassets.

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