Bank of England officials have renewed their warnings about cryptocurrencies. BoE Deputy Governor Jon Cunliffe compared them to unsafe airplanes. He added that although technology can impact the way the risks associated with finance are managed and distributed, it can’t eliminate them completely.
The bitcoin price is now down by more than 70% from the record high it reached in November, and it remains firmly below $20,000 on Wednesday. According to data from CoinDesk, the cryptocurrency hasn’t been priced this low since December 2020.
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BoE Calls For Regulation On Cryptocurrencies
According to CNBC, Cunliffe said regulators must "get on with the job" of bringing cryptocurrencies and their related technologies into the "regulatory perimeter." He made the comments on Tuesday at the British High Commissioner's residence in Singapore. Cunliffe was addressing the ongoing crypto winter, which is essentially just a deep bear market in digital currencies.
He pointed out that finance has always carried inherent risks. Although technology can change the management and distribution of such risks, it can't get rid of them entirely. Cunliffe also described cryptocurrencies as "financial assets with no intrinsic value," adding that they are "only worth what the next buyer will pay."
As a result, he believes volatility is inherent in crypto prices because they are "very vulnerable to sentiment and prone to collapse." According to Cunliffe, cryptocurrencies might not be "integrated enough" into the rest of the financial system to present an "immediate systemic risk." However, he also believes the lines between the traditional financial system and the crypto world will "increasingly become blurred."
What's Next For Crypto?
Cunliffe sees the "interesting question for regulators" as how to ensure that "prospective innovation… can happen without giving rise to increasing and potentially systemic risks."
In recent years, more and more regulators have been warning about cryptocurrencies. Cunliffe believes extending the current regulatory framework to cryptocurrencies should fall under the umbrella of "same risk, same regulatory outcome."
For example, he explained that stablecoins used as a settlement asset in a particular transaction "must be as safe as the other forms of money." Stablecoins are supposed to be pegged to another real-world asset, often a fiat currency like the U.S. dollar.
However, terraUSD broke its peg with the dollar earlier this year, falling as low as 26 cents and highlighting the potential problems with stablecoins. TerraUSD was a so-called "algorithmic" stablecoin, meaning an algorithm governed the peg. When that algorithm failed, the stablecoin collapsed, sending ripple effects throughout the crypto world.
According to Cunliffe, the necessary risk mitigation levels must be implicit in regulatory frameworks and standards. He added that where the regulation can't be applied in exactly the same way, regulators must ensure that they achieve the same level of risk mitigation.
Further, Cunliffe called for such activities to be halted "if and when for certain crypt-related activities this proves not to be possible."
