As bitcoin grows more widespread, a top global regulator has cautioned that “financial stability concerns might rapidly escalate,” with probable moves on stablecoin reserve plus lack of clarity around “decentralized finance” protocols.
The Financial Stability Board [FSB] underscored multiple shortcomings in crypto markets in a “risk assessments to financial stability from crypto-assets” released on Wednesday night and said it wants a coordinated regulatory response from G20 members.
Regulators are clamoring to apply existing securities regulations to the new models as the market capitalization of crypto-assets grows 3.5 times to $US2.6 trillion in 2021. As per a report in The Wall Street Journal on Tuesday, the US Securities and Exchange Commission ended up winning a $US100 million (roughly $145 million) settlement contrary to BlockFi, a crypto exchange lender and is also examining Binance US, the American unit of the world’s largest cryptocurrency exchange.
A Risk To Global Fiscal Stability
The Financial Stability Board stated, “Crypto-asset markets are rapidly expanding and may soon pose a risk to worldwide financial stability because of their magnitude, structural vulnerabilities, and increasing interconnection with the traditional financial system.”
It raised worries about stable coins “regulatory compliance, quality, and sufficiency of reserve assets.” Stablecoins are a type of cryptocurrency that may be borrowed & lent and used to make payments.
Stablecoins, on the other hand, might be vulnerable to “sudden & disruptive rushes on their reserves,” which could have “knock-on implications to short-term funding markets” in the traditional financial system, according to the FSB particularly if stablecoin stockpiles were liquidated in an orderly method. Moreover, if “global stablecoins” are established, the problems will be amplified.
The Financial Stability Board (FSB), based in Basel, Switzerland, has warned about the expanding ties between the cryptocurrency market & the structured financial system.
The FSB said it’s difficult for regulators to “identify a business or individual responsible for implementing regulatory responsibilities” because the amount of money locked under Defi protocols was approximately $US100 billion in Dec, up four times from the previous year. In addition, given that identity verification is unnecessary, it is worried about a lack of “know your client” (KYC) verifications across the sector.
In cooperation with US exchange Gemini, Commonwealth Bank was among the first large banks to announce that crypto would be added to its banking app. Earn, an equivalent offering to BlockFi is offered by Gemini, wherein CBA has a modest stock position.
Drop In Coinbase’s Stock
Even though Coinbase’s stock has dropped over 40% since its Apr 2021 IPO, authorities expect more crypto firms to enter the public market. Circle, which has collaborated with Visa and issued the USDC stablecoin, is applying for a US national bank license and plans to go public.
The SEC’s case against BlockFi, which has garnered $US3 bn in venture capital from Bain Capital Ventures & Tiger Global, has prompted questions about if national securities policies are up to the task of regulating new crypto-economic models.
BlockFi offers yields to people that lend out cryptocurrencies, such as USDC or bitcoin. The SEC discovered this week that BlockFi is a securities firm operating illegally as an investment firm for the past 18 months. Commissioner Hester Peirce of the Securities and Exchange Commission (SEC) criticized the decision, saying, “We need to continue to work with these companies to establish sensible, expeditious, and attainable regulatory approaches,” reports Finextra.com
