FSB Warns Over Crypto Assets Could Affect Global Financial Stability
The Financial Stability Board (FSB) warns of the risks triggered by a crash in the crypto assets market and the crisis of confidence that it would cause in investment assets. The FSB believes that the rapid growth of the crypto-asset industry could threaten global financial stability due to its size, some 2.6 trillion dollars. It also believes in the increasing interconnection with the traditional financial banking system.
It is also similar to crypto buying and selling platforms that comply with current regulations in the absence of regulation. The body that supervises the proper functioning of the international financial system highlights that hedge funds are assigning increasing weight to crypto-assets within their portfolios. However, they still have limited interest due to their high volatility the lack of products (ETF or ETP).
For then, the US market supervisor, the SEC, has only approved one of the ‘exchange-traded’ funds which have requested permission to operate in the market. The ProShares Bitcoin futures ETF, while in the eurozone, only a handful of ETP is operational and licensed. The FSB warns a report notes that increasing the involvement of institutional investors in crypto assets derivatives may increase access to crypto asset exposure. It increases the risk of ‘spillover’ from major markets, for example, if investors have to sell other assets to make against the margins of their positions in crypto assets.
For now, banks are carefully analyzing crypto assets. Few entities plan to offer services linked to this industry. Ana Botín, the president of Banco Santander, defended that the sector competed in that market on that same Wednesday. She said in an ECB publication that Banks welcomed competition in ‘digital finance,’ as long as that competition was fair and would benefit society.
The FSB also recalls that many companies already have small amounts of bitcoin and other crypto-assets in their treasury case of Tesla, MicroStrategy, or Square.
The organization is aware that the relationship between systemic banks and digital currencies is still limited. But points to its rapid growth and warns that it could have implications for global financial stability if this progress continues. It is worried that a collapse in crypto assets would spill over into the broader financial sector and undermine investor confidence. Further, he compares the potential impact of subprime mortgages during the 2008 financial crisis. Suppose financial institutions continue to participate more in crypto-asset markets. In that case, this could affect their balance sheets and liquidity in unexpected ways. As in the case of the ‘US-subprime mortgage’ crisis, a small amount of ‘known exposure’ does not mean a small amount of risk. Especially it is if there is a lack of transparency and insufficient regulatory coverage.
The Financial Stability Board report points to the rapid expansion of decentralized finance (DEFI), providing financial services using crypto and stable coins. Some of these platforms operate outside the regulatory perimeter of jurisdiction or do not comply with applicable laws and regulations.
On the other hand, he believes that stable coins pose another risk due to their role as a common platform between traditional currencies and cryptocurrencies. The regulator considers that if one of these ‘stablecoins’ fails, the consequences will extend to all types of crypto assets, affecting the liquidity of the crypto ecosystem.
