The Bank of England says “extreme volatility” in the crypto market “underscores the need for enhanced regulatory and law enforcement frameworks.” The British central bank has warned that crypto prices could fall further.
Bank of England Calls For Enhanced Crypto Regulators
The Financial Policy Committee of the British central bank, the Bank of England (BOE), said Tuesday that the “extreme volatility” in crypto prices in recent months underscores vulnerabilities in the crypto market, Bloomberg reported.
In citing a 2 trillion dollar decrease in crypto assets’ total market capitalization, the Bank of England stated that it needed to enforce and regulate the sector more rigorously. The total market capitalization of all cryptocurrency assets is currently around $1 trillion. The market cap of all cryptocurrencies was almost $3 trillion when it reached its highest point in November 2017.
Last month, Agustin Carstens, the general manager of the Bank of International Settlements (BIS), said all the weaknesses in the crypto market “that were pointed out before have pretty much materialized.” They include liquidity mismatches and participants unwinding leveraged positions.
The British central bank warned that crypto markets could continue to decline and issued this warning:
These developments highlight the importance of enhancing regulatory and law enforcement systems to deal with them.
Although the central bank acknowledged that volatility in crypto markets isn’t currently a threat to stability, it warned that there could be systemic risk if the activity continues to increase and interconnect with traditional financial systems.
Last month, the president of the European Central Bank (ECB), Christine Lagarde, similarly said: “Crypto assets and decentralized finance (defi) have the potential to pose real risks to financial stability.”
Bank of England’s deputy governor for financial stability, Sir Jon Cunliffe, has said on several occasions that the cryptocurrency market could pose a threat unless urgently regulated. As the Federal Reserve and other central bank tighten monetary policy, Cunliffe warned of difficult times for crypto investors in May. In December 2017, he warned of a possible drop in crypto prices to zero.
Andrew Bailey, governor of Bank of England said that crypto asset investors must be ready to risk losing all of their capital. He said that crypto assets do not have an intrinsic value and that bitcoin is not a viable payment option.
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