The Financial Stability Board (FSB), an international organization that monitors risks to G20 economies, said that the booming cryptocurrency market could soon pose a serious threat to financial stability.
According to the FSB report published on Wednesday, the rapidly developing cryptocurrency markets may become a threat soon to financial stability due to their scale and growing interconnection with the traditional financial system.
If the pace of rapid implementation continues at the current level, regulators around the world should be prepared for all types of risks and have ready-made responses at hand.
The report also states that the capitalization of the cryptocurrency market increased by 3.5 times last year, namely to $2.6 trillion.
If the current scale-up situation persists, it could have implications for financial stability.
Some of the issues that the FSB pointed out included the growing interconnection between cryptocurrencies and the regulated financial system, liquidity mismatches, the growing use of leverage in investment strategies, the risk of concentration of trading platforms, and lack of regulation.
The FSB also noted a gap in public understanding of the crypto space compared to levels of participation.
The risks associated with the popularity of stablecoins were also highlighted, including regulatory compliance and reserve asset adequacy.
Since stablecoins are mainly used as a bridge between crypto-assets and traditional fiat currencies, this affects the stability and functioning of crypto-asset markets. The ecosystem of assets (including in DeFi) may become limited. This can disrupt trading and also cause stress in these markets.
The report concluded that the FSB will continue to monitor events and new risks in the crypto space, as well as explore the potential of regulation.
The Financial Stability Board was established in 2009 after the G20 summit in London. It is an international organization responsible for monitoring and providing recommendations regarding the global financial system.