Crypto Collapse Could Result in Global Financial Crisis, Claims Bank of England Executive

The deputy governor of the Bank of England called for standard rules for cryptocurrencies.

By Shomik Sen Bhattacharjee | Updated: 21 October 2021 09:21 IST

Crypto Collapse Could Result in Global Financial Crisis, Claims Bank of England Executive

Cryptocurrencies are slowly gaining traction around the world

Highlights

Crypto collapse could cause a global financial crisis, claims BoE exec
Cryptocurrencies have grown by around 200 percent in 2021 alone
Cunliffe calls for enhanced regulations as the crypto market expands

Bitcoin has reached its all-time-high but a Bank of England (BoE) senior official has warned that cryptocurrencies could give rise to a global financial crisis unless tough regulations are introduced. Bank of England Deputy Governor for financial stability Jon Cunliffe speaking at an annual banking and financial conference highlighted the fact that crypto-assets are currently worth $2.3 trillion (roughly Rs. 173.052 lakh crores), which is roughly 200 percent more than what it was at the start of the year.

"Crypto technologies offer a prospect of radical improvements in financial services," Sir Jon Cunliffe said in a speech at SIBOS — a conference organized by the Society for Worldwide Interbank Financial Telecommunication (SWIFT). "However, while the financial stability risks are still limited, their current applications are now a financial stability concern for a number of reasons," he added.

In fact, Cunliffe went on to make a direct comparison between the growing popularity in cryptocurrency and the US market boom in sub-market mortgages, which gravely intensified the global economic crisis of 2008.

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Cunliffe found that the conversation around the necessity for regulation of the asset class lacking, especially given the rate of market development. Speeding up-regulation, he said, "needs to be pursued as a matter of urgency."

The BoE top brass also spoke on unbacked crypto-assets — such as Bitcoin, which are up to 8,000 in existence. According to Cunliffe's speech, half of the existing holders of unbacked crypto assets in the UK alone, plan to further invest in cryptocurrency. As retail investors increase, more institutional investors are also considering making a break into the market. Asset management institutions are being pressured into looking at crypto and finding a way to include it in their portfolios.

This isn't the first time a top financial risk expert has called for urgent regulation with respect to cryptocurrencies. Regulators have consistently given warnings about the volatility of cryptocurrency and related unbacked assets. Some countries — like China, have gone on and banned all digital transactions, declaring them illegal.

Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.

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