John Culiffe, the Deputy Governor of the Bank of England has said that crypto has become a financial stability concern. According to him, a crash in the cryptocurrency market is "plausible" and regulatory clarity is urgently needed.
Bank of England Deputy Governor Jon Cunliffe emphasized cryptocurrency regulation given the rapid growth of the industry and how long it takes to put new rules in place. During a speech at the SIBOS conference, he said:
"Regulators internationally and in many jurisdictions have begun the work. It needs to be pursued as a matter of urgency."
He points out that largely unregulated crypto assets have grown by 200% so far this year, from just under $800 billion to $2.3 trillion, with 95% of them unbacked by any asset or fiat currency. Referring to the collapse of the U.S. mortgage market that led to a global banking crisis, Cunliffe opined:
“Such a collapse is certainly a plausible scenario, given the lack of intrinsic value and consequent price volatility, the probability of contagion between cryptoassets, the cyber and operational vulnerabilities, and of course, the power of herd behavior.”
Cunliffe previously said that the crypto industry was not big enough to pose a threat to the country’s financial stability. However, he said at the recent conference that there are now some “very good reasons” to think that this might not be the case for very much longer.
Recently, the International Monetary Fund (IMF) published a report stating that cryptocurrency could pose financial stability risks, urging governments worldwide to establish common rules to regulate cryptocurrencies. Still, he sees positive potential in cryptocurrencies with regulatory clarity.
"Indeed, bringing the crypto world effectively within the regulatory perimeter will help ensure that the potentially very large benefits of the application of this technology to finance can flourish in a sustainable way. It needs to be pursued as a matter of urgency."