Yahoo Finance Crypto-assets could hit global financial stability, warns FSB
The rapid rise of crypto-asset markets could impact global financial stability, the Financial Stability Board (FSB) warned on Wednesday.
In its latest report it said that the fast evolving sector may reach a point where it threatens stability due to its scale, structural vulnerabilities, and increasing interconnectedness with the traditional financial system.
The data examined developments and associated vulnerabilities in three segments of crypto-asset markets: unbacked crypto-assets such as bitcoin (BTC-USD); stablecoins; and decentralised finance (DeFi) and crypto-asset trading platforms.
It highlighted possible threats due to increasing linkages between crypto-asset markets and the regulated financial system, and credit and operational risks that make stablecoins susceptible to sudden and disruptive runs on their reserves.
The FSB added that the potential to spill over to short-term funding markets was also a problem, as well as the increased use of leverage in investment strategies, concentration risk of trading platforms, and the opacity and lack of regulatory oversight of the sector.
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Crypto-asset market capitalisation grew by 3.5 times in 2021 to $2.6tn (£1.9tn), however, crypto-assets remain a small portion of overall global financial system assets.
Direct connections between crypto-assets, and systemically important financial institutions and core financial markets also remain limited.
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As financial stability risks could escalate rapidly, it called for “for timely and pre-emptive evaluation of possible policy responses”.
It said it would continue to monitor developments and risks in the crypto-asset sector, and explore potential regulatory and supervisory implications of unbacked crypto-assets.
It comes as crypto ownership has doubled in a year among younger adults.
According to data from Boring Money, as many as 12% of adults under 45 now report owning some crypto assets, double the same figure a year ago. Among those aged over 45, ownership is significantly lower at 3%.
Overall 7% of the UK adult population hold crypto assets, and a further 3% admitted to holding cryptos in the past.
There is a ‘bookend’ effect in the DIY investment market today,” Holly Mackay, chief executive at Boring Money, said. “At one end we have millions of people in cash, with significant balances, and no investments. At the other end, we have some relatively inexperienced, mostly younger investors holding extremely volatile assets.
“There is a more natural middle ground for millions, and providers have to find some answers on how to transition more customers to that more comfortable middle ground.”
Last year the Financial Conduct Authority (FCA) raised concerns about the volume of newer investors attracted to high-risk investments, and the risk of ‘low friction’ trading on mobile devices.
