Bank of England (BoE) Deputy Governor Jon Cunliffe dismissed the idea that crypto poses a threat to macro-financial stability.
Meanwhile, the past few weeks have seen global regulators tackle the crypto sector, with Binance feeling the brunt of the force. Not to mention the actions of the Chinese authorities, which have radically changed the landscape in two short months.
Plus, with US authorities getting louder and louder about the risks presented by stablecoins, it’s hard to know what to do with the situation.
Crypto does not threaten financial stability … yet
Speaking on Wednesday, Cuncliffe referred to the “notable” crypto boom that has occurred this year. It should be added that at current levels, it does not present a risk for financial stability.
“The crypto speculative boom is very noticeable, but I don’t think it has crossed the line of financial stability risk.”
In May, before the FUD-induced slowdown, BoE Governor Andrew Bailey was not as accommodating as Cunliffe. Instead, Bailey had no qualms about saying cryptocurrencies have no intrinsic value and anyone who invests should be prepared to lose all of their money.
Continuing, Cunliffe said crypto speculation is currently mostly limited to retail investors, implying that the BoE is aware of the issue of investor protection.
However, due to the relatively small total market cap and lack of a deep connection to the old system, Cunliffe believes crypto poses a risk to financial stability.
But, if those ties deepened, as in the case of more institutional investments and perhaps UK-based Bitcoin ETF products, then he would reconsider his position.
“If we started to see those ties develop, if we started to see it move more from retail to wholesale and see the financial sector more exposed, then I think you could start to think about risk in that sense. “
All the same, Cuncliffe made it clear that the classification and treatment of stablecoins should be different from these “speculative” crypto assets. It calls for specific regulatory oversight on stable coins.
Fed Grows Concern About Stablecoins
Data from analyst firm Messari shows stable market capitalization peaked in the second quarter of 2021 at $ 107 billion, up 70% from the previous quarter.
As expected, Tether leads the pack, accounting for over half of the total stablecoin market cap.
However, Boston Fed chief Eric Rosengren has expressed unease over the growing size of the stable cryptocurrency market, with Tether of particular concern.
“There is a problem with financial stability as they are increasing and we need to look at the regulations and what has been marketed to the general public. “
Credit rating agency Fitch also warned of the destabilizing effects that rapid stablecoins growth could have on short-term credit markets. They point the finger at the potential shock linked to the massive liquidation of stable coins.
As part of its settlement with the New York attorney general, Tether was required to provide quarterly reports on its reservations.
In the past, Tether has claimed that the USDT issued was 1 to 1 backed by dollar held on account. But the latest quarterly report shows that only 2.9% of its reserves are in the form of cash.