- The weakening economy has produced extraordinary market volatility.
- The BOE warned that systemic problems for the larger economy might arise.
The Bank of England has emphasized the need for more robust regulation and law enforcement structures concerning cryptocurrencies. Both conventional and crypto markets may be in for more suffering in the future, the Bank of England has warned.
Financial Policy Committee members released a report on Tuesday saying that the weakening economy has produced extraordinary market volatility, which has led to significant drops in the values of risk-on assets such as shares and digital money. The paper says several market weaknesses have been uncovered due to the crypto collapse, but they do not constitute a threat to broader financial stability.
An excerpt read:
“A number of vulnerabilities were exposed within cryptoasset markets similar to those exposed by past episodes of instability in more traditional parts of the financial system. These include liquidity mismatches leading to run dynamics and fire sales, and leveraged positions being unwound and amplifying price falls. 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. These events did not pose risks to financial stability overall.”
Correlation Between Equities and Crypto Market
As crypto’s popularity and linkage with the conventional financial system grew, the BOE warned that systemic problems for the larger economy might arise. According to the central bank’s statement, this highlights the need for “enhanced regulatory and law enforcement frameworks” to deal with the advances in these markets and activities.
Traditional assets like equities will not change despite the BOE’s request for more stringent crypto regulatory measures. Stocks have lost almost $11 trillion since the beginning of this year; this is about 3.6 times the whole cryptocurrency market capitalization at its highest point.
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