The crypto market is falling apart, and only a widespread crypto regulation can maintain financial stability
The Bank of England’s Financial Policy Committee called for “enhanced regulation” of the crypto-asset market to mitigate against potential risks and limit contagion, according to Coindesk.
The Committee focuses on the central bank’s role in stabilising crypto-asset markets and activities. Recent market turmoil following the collapse of Terra’s stablecoin in May doesn’t pose a threat to the wider financial system yet. However, crypto lenders such as Celsius Network and Babel Finance have frozen withdrawals, while Voyager Digital and Three Arrows Capital filed for bankruptcy. As crypto-related services become more integrated into mainstream finance, events like that will negatively impact national economies.
Both the US and EU have announced plans to govern crypto assets. The UK Treasury has also announced that the Bank of England shall regulate systemic stablecoins connected with the general financial system.
The global governments plan to bring crypto exchange platforms out of the unregulated shadows. The Bank of England particularly pointed at several vulnerabilities in the stablecoin realm. Being backed by commercial bank deposits, those present “undesirable financial stability risk” unless well-regulated.