According to Sir Jon Cunliffe, deputy governor of the Bank of England, bitcoin regulation is a “matter of urgency.”
Cryptocurrency technologies, according to him, do not constitute a threat to financial stability at this time.
However, Sir Jon stated in a speech that there are “quite good reasons”. To believe that this will not remain the case for much longer in the future.
He cautioned that a potential Bitcoin crash might have ramifications across the financial sector.
A steep decline in the value of crypto-assets – for example, to zero. It could require investors who have incurred debts with brokers to find the cash to make the payments owed to them.
The danger of contagion exists, as well, according to the expert. “A significant decline in cryptocurrency prices might have a broader impact on investor risk sentiment. Also, in driving investors, other assets that deemed to be risky to have a comparable investor base,” the authors write.
Because of interconnectedness, there is a risk that shocks will propagate across the financial system, according to him.
As a result of China’s prohibition, the United States is the leader in Bitcoin mining.
In the previous year, the value of crypto-assets has increased by over 200 percent. Rising from just under $800 billion (£580 billion) to $2.3 trillion (£1.7 trillion).
Sir John said that while this is a minor sum in the perspective of the $250 trillion global financial systems, the 2008 financial crisis precipitated by the sub-prime mortgage sector, which value at $1.2 trillion at the time.
The majority of crypto-assets, such as Bitcoin are not backed up by physical assets or commodities in the actual world.
They are essentially strings of computer code, and they account for 95% of the $2.3tn in revenue. As a result, they are highly volatile, according to him.
In addition, Sir Jon noted that the number of connections between cryptocurrencies and the regular financial system is expanding as prominent investors, hedge funds, and banks become more involved.
In addition, he stated that “bringing the crypto-currency world properly within the regulatory perimeter will assist in ensuring that the potentially very enormous benefits of the application of this technology to finance may flourish sustainably.”