The Bank of England’s deputy governor for financial stability, Jon Cunliffe, has warned that cryptocurrencies could spark a global financial crisis unless tough regulations are introduced.
In a speech Wednesday, Cunliffe likened the rate of growth of the crypto-asset market, from $16 billion five years ago to $2.3 trillion today, to the $1.2 trillion subprime mortgage market in 2008.
“When something in the financial system is growing very fast, and growing in largely unregulated space, financial stability authorities have to sit up and take notice,” he said.
Cunliffe acknowledged that governments and regulators must be careful not to overreact or classify new approaches as “dangerous” simply because they are different, and also noted that crypto technologies offer a prospect of “radical improvements” in financial services.
However, he contended that although financial stability risks remain limited for now, the current applications of crypto assets pose a financial stability concern since the majority “have no intrinsic value and are vulnerable to major price corrections.”
Bitcoin and ethereum, the two largest cryptocurrencies, plunged more than 30% in value earlier this year before recovering, and have proven extremely volatile since their creation. Prices are susceptible to a variety of external triggers, from comments by Tesla CEO Elon Musk to regulatory crackdowns by the Chinese government.
The crypto world is beginning to connect to the traditional financial system and we are seeing the emergence of leveraged players. And, crucially, this is happening in largely unregulated space,” Cunliffe said.
His comments echo those of Bank of England Governor Andrew Bailey in May, who cautioned that cryptocurrency investors should be prepared to lose all their money due to the assets’ lack of “intrinsic value.”
The U.K.’s Financial Conduct Authority has also warned of the risky nature of the crypto investment.
Cunliffe said the risk to financial stability could grow rapidly if the market continues to expand at such a pace, but the scale of those risks will be determined by the speed of response by regulators and governments.
(Except for the headline, this story has not been edited by The Finance World staff and is published from a syndicated feed.)
