Bank Of England Calls For Stricter Crypto Regulations As Crypto Markets Reel Under Pressure

The Bank of England has called for stricter measures to prevent financial risks posed by digital assets even as the global cryptocurrency industry market cap gets slashed by over half.

According to a “financial stability report” by the Financial Policy Committee (FPC) published Tuesday, the top bank noted that the ongoing storm had proven that the crypto sphere was still exposed to vulnerabilities rendering it an extremely risky industry. Although most of these vulnerabilities were similar to those facing more traditional parts of the financial system, the bank also noted the increasing risk posed by stablecoins, which are particularly unique.

“Investor confidence in the ability of certain so-called ‘stablecoins’ to maintain their pegs was weakened significantly, particularly those with no or riskier backing assets and lower transparency,” Wrote the ECB.

That said, although these events “did not pose risks to financial stability overall” the BOE stated that the sector’s weaknesses need to be addressed urgently, failure to which “systemic risks would emerge” as its interconnectedness with the wider financial system, continued to develop.

“This underscores the need for enhanced regulatory and law enforcement frameworks to address developments in these markets and activities.”

The absence of crypto regulations has become a major concern globally, especially with the infiltration of nefarious actors who are out to exploit users in the sector. The UK has particularly been keen on regulating the sector with BoE’s FPC setting out expectations that stablecoins should meet standards equivalent to commercial bank money. 

Already, the Financial Conduct Authority is probing the collapse of Terra’s stablecoin as part of its wide attempt at constructing new rules for the crypto industry. In April, the Chancellor of the Exchequer directed the BoE to set up a task force to set up a crypto regime and bring stablecoins under the existing payment regulations.

Cryptocurrencies Continue To Falter

The latest BoE report comes on the heels of a global market plunge that has seen the market capitalization of cryptocurrencies fall sharply below $1 trillion to $908 billion. The crypto market has been rocked by a string of headwinds including geopolitical tensions which have crippled the global supply chain. Most recently, major cryptocurrencies have been hit by the de-pegging of certain stablecoins as well as a liquidity crisis that has brought the DeFi lending sector to its knees.

Cryptocurrencies such as Bitcoin, Ethereum, and Solana have all fallen by over 70% from their all-time highs with smaller altcoins plummeting by over 90%. While the market already looks overstretched to the downside, experts have warned that “we are not there yet” and that recession fears could trigger a final capitulation, potentially sending Bitcoin to sub $16,000.

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