Date: THU, OCT 14 2021
Media: CNBC
What happened?
The Bank of England’s deputy governor for financial stability, Jon Cunliffe, and the Bank of England’s Governor, Andrew Bailey, explain the risky nature of crypto investment.
The current applications of crypto assets pose a financial stability concern since the majority «have no intrinsic value and are vulnerable to major price corrections». As this is happening in a large unregulated space, it could lead to a financial crisis similar to the one in 2008.
The scale of those risks will be determined by the speed of response by regulators and governments.
Whom and where it affects?
As the use of cryptocurrencies increases, the need for political regulations on this type of investment also increases.
This issue affects those that invest in cryptocurrencies and at the very end at the financial system, governments and population all over the world.
What sort of public or private institutions are involved?
The public institutions that are involved are the Bank of England and the U.K.’S Financial Conduct Authority.
Why is it important for Banking and Finance?
The crypto world is beginning to connect to the traditional financial system and we are seeing the emergence of leveraged players. In a largely unregulated space this situation could lead to investors losing all their money due to the assets’s lack of intrinsic value.
The risk to financial stability could grow rapidly if the market continues to expand at such a pace and this could ultimately take the economy to a global crisis such as the one back in 2008.
What do you think will be the consequences in the foreseeable future?
Given the volatility, the lack of regulations and the extensive growth of crypto currencies, we could expect a crisis derived from crypto assets in which investors will lose their money.
The current volume of cryptocurrency operations, $ 2.3 trillion, is comparable to the $1.2 trillion subprime mortgage market in 2008; so it would not be unreasonable to expect a similar crisis to happen again. However, institutions seem to have begun to analyze, warn and take action on the matter to avoid this risk. So, apparently, there is still hope to avoid a crisis derived from cryptocurrencies.
Keywords: Cryptocurrency, crisis, meltdown, regulations, investors, risks.