Danger No More? Bank for International Settelements No Longer Thinks Cryptocurrencies are an Immediate Threat
The Bank for International Settlements (BIS) has issued a new report claiming that cryptocurrency markets are directly impacted by news events related to regulation. But perhaps more noteworthy is the Bank’s conclusion that cryptocurrencies do not yet pose a systemic threat to global financial stability – a statement that seemingly contradicts past assertions.
BIS’ conclusion followed a lengthy discussion on the impact of regulatory news on cryptocurrency prices. In a 15-page section of its Quarterly Review devoted to cryptocurrencies, the Bank issued the following statement:
“While cryptoassets thus do not, at this point, pose a global financial stability risk, it is important to remain vigilant, monitor developments and respond to potential threats.”
The conclusions were influenced by the Financial Stability Board, which reports directly to the World Economic Forum. FSB Chairman Mark Carney declared back in April that cryptocurrencies aren’t a risk to the financial state but that they should be regulated appropriately. Like the FSB, the Bank for International Settlements is still concerned with the “illicit uses” of cryptocurrencies, especially for cross-border payments that circumvent capital controls set up by the state.
BIS, also known as “the central bank of central banks,” also seems to argue that cryptoassets are slowly making their way into conventional finance. This means banks and traditional financial institutions have a vested interest in the market’s outcome.
“[N]ew types of crypto-products, such as crypto-funds and derivatives on cryptocurrencies and cryptoassets, create additional linkages with the financial system,” the Bank said. “And cryptocurrencies and other cryptoassets can piggyback on the conventional financial system. A loss of public trust in cryptoasset markets could translate into distrust in the broader financial system and its regulators.”
With the successful launch of bitcoin futures back in December, several issuers are now racing to list the first bitcoin exchange-traded fund. However, the U.S. Securities and Exchange Commission (SEC) has yet to grant approval to any of the recently submitted applications.
BIS issued a 24-page report three months ago arguing that bitcoin was an environmental disaster and that cryptocurrencies suffered from a “range of shortcomings” that could derail financial stability. The institute also argued at the time that decentralization was a fundamental flaw that would make assets like bitcoin a “poor substitute for the solid institutional backing of money.”
Previously, BIS’ general manager Agustin Carstens called on central banks to stamp out cryptocurrencies because they were giant Ponzi Schemes.
While cryptocurrencies still operate beyond the immediate reach of national governments, they are slowly making their way into the traditional banking system through innovations in blockchain payments and securitization. This trend is only intensifying as major banks, stock exchange operators and money managers race for first-mover advantage.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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