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Cryptographic links with banks pose a threat to financial stability, the ECB says

The European Central Bank warns that deepening relations between the crypto industry and banks and asset managers poses risks to financial stability, as the latest sign that central banks and governments are increasing market scrutiny. doing.

The ECB said on Tuesday that it “deeper into the leverage and lending of crypto assets” and found evidence that these activities are more risky, complex and interrelated with traditional institutions. ..

“Investors have been able to cope with the € 1.3 trillion decline in market capitalization of unsubstantiated crypto assets since November 2021 without taking the risk of financial stability,” the ECB said. “But at this rate, unsubstantiated crypto assets reach a point that represents a risk to financial stability.”

The first such warning from the ECB, issued as part of the twice-yearly financial stability review, is similar from US and UK authorities who are not nervous about the recent series of failures in the crypto market. I followed the message.

Bitcoin, the world’s flagship cryptocurrency, has halved in value since November and has recently fallen below $ 30,000 for the first time since last summer. Tether, the most important stablecoin on the market, has temporarily lost its peg to the US dollar, with the exception of its rival terraUSD. Collapsed..

The crypto market itself has grown rapidly in recent years, with major platforms such as Binance and FTX offering a variety of complex financial products. According to data collected by The Block Crypto, the world’s largest crypto exchange processed about $ 700 billion in spot trading and about $ 1.1 trillion in Bitcoin futures last month.

The ECB said the trading volume of crypto assets is “equal to or higher than the quarterly trading volume of the New York Stock Exchange and Eurozone government bonds.”

At the same time, it said that some crypto exchanges are offering their clients loans so that they can increase their exposure by 125 times their initial investment. However, “remaining critical information and data shortcomings” means that “the full range of possible transmission routes in traditional financial systems cannot be fully identified.”

ECB Governor Christine Lagarde said on weekend Dutch television that crypto tokens are “worthless, unbased, and have no underlying assets to act as security anchors.” ECB executive Fabio Panetta recently Can be compared The sector has moved to a “Ponzi scheme” and called for crackdowns on regulations to avoid “illegal risk-taking frenzy.”

The ECB said in a report Tuesday that the link between eurozone banks and crypto assets was “restricted so far.” Central banks have stated that some international and eurozone banks “have already traded and liquidated regulated crypto derivatives even if they do not have an inventory of underlying crypto assets.”

Large payment networks have “strengthened support for crypto services,” and institutional investors have “generally invested in Bitcoin and crypto assets,” he added.

Keeping in mind that German institutional investment funds have been allowed to invest up to one-fifth of their crypto assets in crypto assets since last year, such investments are exchange-listed crypto. He said it was backed by the availability of base derivatives and securities.

The ECB also has risks from decentralized finance, or DeFiCryptocurrency-based software programs provide financial services without the use of intermediaries such as banks.

“The DeFi platform’s cryptocurrency credits increased 14-fold in 2021, but until very recently, the total amount locked was around € 70 billion, comparable to the small banks in the surrounding European countries.” It states. The re-hypothesis that one loan’s collateral can be remanded to another loan has increased the likelihood of violating the leverage limit.

According to a recent ECB survey, one in ten EU households “may own crypto assets”, most of which invested less than € 5,000 in this sector. Similarly, a Fed survey released Monday found that in 2021, 12% of adults in the United States own or use cryptocurrencies.

EU is finalizing legislationAlthough called the crypto asset market, the ECB said it will not come into effect until 2024 at the earliest. “Given the speed and increased risk of cryptocurrency development, it is important to bring crypto assets to the boundaries of regulation and put them under supervision as an urgent issue,” he said.

Additional Report by Scott Chipolina in London

Cryptographic links with banks pose a threat to financial stability, the ECB says

Source link Cryptographic links with banks pose a threat to financial stability, the ECB says

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