The rapidly growing crypto market may soon pose a threat to global financial stability. That's according to the Financial Stability Board, which has called for urgent policy re-evaluations.
The international organisation that monitors and makes recommendations for the global financial system outlined the potential problems with unbacked crypto, stablecoins, crypto trading platforms and decentralised finance.
A report on Wednesday said crypto-asset markets are fast evolving ... and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities, and increasing interconnectedness with the traditional financial systems.
The report is not surprising. Several regulators in some of the leading countries including the UK and US have commented on the need for tighter policy in recent months.
Despite cryptos estimated two trillion dollar market value, it is still a small portion of the world’s assets, which explains how risks to financial stability “could still rapidly escalate.”
In the five years to October 2021, the crypto market capitalisation surged approximately 200% to a record US$2.7 trillion.
According to CoinDesk, most investors that own cryptos picked up the digital currencies in 2021’s bull run, with investments failing to pick up by much since.
Nevertheless, the report said institutional involvement in crypto-asset markets, both as investors and service providers, has grown over the last year, albeit from a low base.
Large corporations including Tesla Inc (NASDAQ:TSLA) and MicroStrategy have significant Bitcoin exposure, whilst financial institutions JPMorgan and Morgan Stanley (NYSE:MS) have adopted a more cautious approach, CoinDesk said.
“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 FSB added.