The BoE’s deputy governor of financial stability said that crypto now potentially poses a risk to the global financial system.
Crypto assets have grown rapidly from just $16 billion five years ago to about $2.3 trillion today, and thus could pose a systemic risk to the global financial system, the Bank of England said on Wednesday.
- While $2.3 trillion is small compared to the $250 trillion global financial system, it doesn’t take much to destabilize things. The sub-prime debt market was valued at around $1.2 trillion in 2008, just before the financial crisis, noted the BoE’s Jon Cunliffe, the bank’s deputy governor of financial stability in a speech.
- ”In that case, the knock-on effects of a price collapse in a relatively small market was amplified and reverberated through an un-resilient financial system causing huge and persistent economic damage,” Cunliffe said.
- Cunliffe said that because the crypto industry is growing rapidly and beginning to connect to the traditional financial system, with the emergence of leveraged players and in a mostly unregulated space, systemic risks, while limited now, could grow very quickly.
- He said that regulation should be “pursued as a matter of urgency” and quoted SEC chair Gary Gensler’s recent comment that “financial innovations throughout history do not flourish outside public policy frameworks.”