The Financial Stability Board (FSB) has issued a warning that cryptocurrencies and every other digital asset pose a huge threat to the global financial system.
FSB revealed that the rapid growth in blockchain, Cryptocurrency, and Digital Currency (BCDC) adoption and the limited available data from the space which make regulation difficult is a major threat that the space holds.
For this reason, Klaas Knot, the Dutch Central Bank governor who became the chairman of the Basel-based FSB in December said that “There is clearly a higher degree of urgency” to manage the risk that digital assets pose to the financial system.
He further noted that “Now what we are seeing is . . . not only has there been a rapid increase in scale, but also, the touchpoints with traditional financial intermediation have increased and therefore it needs more focus from the FSB.”
The Fear of Cryptocurrency Taking Charge
According to the report, the major threat is the fear of digital currencies/assets taking over the global financial system. This is highly worrisome noting the degree of anonymity these nascent asset class provides, and yet they continue to see a massive embrace that boosts their overall monetary value.
The market value of crypto assets such as Bitcoin (BTC) and Ether (ETH) surged from about $350 billion at the start of 2020 to above $3 trillion last year. It has since fallen to just over $2 trillion at the time of writing according to data from Coingecko. Some parts of the crypto market, and its connections with the rest of the financial system, are hard to assess because of “significant data gaps”, the FSB said.
For a long time, the global financial system has been used to value currencies with natural resources. A clear example is the world’s reserve currency, the United States Dollar (USD), which is been used to back gold as a natural resource or tangible asset. For that reason, these assets’ large values are accepted due to the range of available data on that that the global market provides.
The anonymity of these digital assets has now made acceptance on the part of regulators very difficult and currently fueling their tag as a global risk to the financial system. According to the FSB, these features presented by the crypto space which hides users’ identity are an avenue to massive money laundering.