The global market capitalization of the cryptocurrency industry has been reduced by more than half, but the Bank of England has called for stricter regulations to prevent the financial risks posed by digital assets. The top bank noted in a “financial stability report” by the Financial Policy Committee (FPC) released on Tuesday that the ongoing storm had shown that the crypto industry was still vulnerable, making it a very risky sector. The bank also mentioned the growing risk posed by stablecoins, which are particularly unique, despite the fact that most of these vulnerabilities were similar to those facing more conventional parts of the financial system.
Investor confidence in some so-called “stablecoins”‘ ability to keep their pegs was significantly weakened, especially for those with fewer or riskier backing assets and lower transparency. said the ECB.
However, the BOE stated that despite the fact that these incidents “did not pose risks to financial stability overall,” the sector’s weaknesses need to be urgently addressed in order to prevent “systemic risks” from developing as its interconnectedness with the larger financial system continued to grow.
The need for improved regulatory and law enforcement frameworks to address changes in these markets and activities is highlighted by this.
Globally, the lack of crypto regulations has raised serious issues, particularly with the influx of criminals looking to take advantage of users. With BoE’s FPC outlining expectations that stablecoins should meet standards equivalent to commercial bank money, the UK has been particularly keen on regulating the sector.
The Financial Conduct Authority is already looking into the failure of Terra’s stablecoin as part of its extensive effort to develop new regulations for the cryptocurrency industry. The BoE was given a task force to create a crypto regime and bring stablecoins under the current payment regulations by the Chancellor of the Exchequer in April.
Cryptocurrencies Continue to stumble
Following a sharp decline in the global stock market, which caused the market capitalization of cryptocurrencies to drop below $1 trillion to $908 billion, the most recent BoE report was released. A number of factors, including geopolitical tensions that have hampered the global supply chain, have shaken the cryptocurrency market. Recently, the de-pegging of some stablecoins and a liquidity crisis that has crippled the DeFi lending industry have both negatively impacted major cryptocurrencies.
Cryptocurrencies like Bitcoin, Ethereum, and Solana have all dropped more than 70% from their all-time highs, and smaller altcoins have fallen more than 90%. Experts have cautioned that “we are not there yet” and that recession fears could cause a final capitulation, potentially sending Bitcoin to below $16,000, even though the market already appears overstretched to the downside.