Bank of England (BoE) Deputy Governor Sir John Cunliffe has pointed out that digital currencies are viable enough to drive “radical improvements in financial services.”
Speaking to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the banking veteran said the potential of emerging assets doesn’t negate the fact that they have inherent financial risk.
Sir Cunliffe noted that the risks to financial stability are currently relatively limited. Still, they could grow very quickly if the digital currency industry continues to grow as fast as it is currently behind it. There are many factors that can increase these risks to financial stability, as noted by Sir Cunliffe, of which the lack of intrinsic value and regulation are among the most obvious.
“Cryptoassets are growing fast, and there are [a] rapid development of new applications for the technology,” he said.
“Most of these assets have no intrinsic value and are susceptible to major price corrections. The crypto world is beginning to connect with the traditional financial system and we are seeing the emergence of leveraged gamblers. And above all, this happens in a largely unregulated area. “
Cryptocurrency growth has measured the industry’s market cap from $ 16 billion about five years ago to over $ 2.36 trillion today. There has been a large influx of institutional investors into the emerging industry over the past year, a trend that confirms the maturity of the emerging asset classes.
The inherent threats to these digital assets are responsible for the remarkable regulatory crackdown that financial watchdogs around the world are using to halt the growth of the industry. However, Sir Cunliffe says that while watch dogs can regulate space accordingly, they should approach the sector with caution so as not to outsmart generational innovations.
“When something in the financial system grows very quickly and grows in a largely unregulated area, the financial stability authorities have to sit up and pay attention. They have to think very carefully about what could happen and whether they or other regulators need to act, ”he said. We should not classify new approaches as “dangerous” just because they are different. Innovation, technology and new players can overcome longstanding points of friction and inefficiencies and break down barriers to entry. “
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