New report from the Bank of Spain discusses the rise in cryptocurrency use and possible consequences for the country’s financial stability. In the document, the bank explains that these assets — which ostensibly don’t have any kind of support behind them — can introduce systemic risks via their adoption by traditional institutions and the lack of regulation over them.
According to Bank of Spain, Crypto Assets could cause systemic risk
New report from the Bank of Spain warning about cryptocurrency’s growth and possible impacts on the economic system. Although the crypto market remains limited, it is growing exponentially and has no support. This could put a strain on the global economic system.
This “systemic risk” is explained by the growing links between crypto and the traditional economy. Two possible risk factors are identified by the Bank of Spain. First, the increased volatility and correlation of these assets with traditional markets. The document provides information on this topic:
This may be due to the volatility in crypto assets. If these assets are corrected, it could lead to a wider correction of financial asset prices.
A second risk factor is traditional stablecoins, such as USDT and USDC. Because of their high market caps, issuers must maintain large support assets. This might affect the prices of these “safe” assets in the case of an accelerated run caused by market conditions.
It’s still not enough to regulate
According to the report, although these assets are a significant threat to global economies, regulations have yet to be established. Spain has not been able to regulate crypto currencies and recently published a series of guidelines and recommendations for advertising campaigns that use these elements.
This document clarifies:
The Bank of Spain is unable to supervise, regulate or authorize the operations of cryptocurrency asset markets and their participants in this absence of national regulation.
Spain, and others from the E.U. We are still waiting on approval of MiCA. The Markets in Crypto Assets law framework will be approved. According to recent reports supranational entities will be designated to supervise cryptocurrency operations in Europe.
Let us know your thoughts on the Bank of Spain’s latest report about the dangers cryptocurrencies pose to the global economy. Leave a comment below.
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