The Bank of Spain has issued a new report looking at the popularity of cryptocurrency use and the potential impact on the nation’s financial stability. In the document, the bank explains that these assets – which are said to have no backing whatsoever – may pose systemic risks due to their acquisition by traditional institutions and the lack of regulation over them.
According to the Bank of Spain, crypto assets could create systemic risks
The Bank of Spain has issued a new report warning about the growth of the cryptocurrency economy and its possible impact on the traditional economic system. According to the report, while the cryptocurrency market could still be considered limited, its exponential growth and the fact that most of the market value comes from unsupported cryptocurrency assets could pose risks to the global economy.
This “systemic risk” is explained by the growing connections between crypto and the traditional economy. The Bank of Spain identifies two possible vectors. The first has to do with the increased volatility of these assets and their correlation with traditional markets. The document informs about this:
The high volatility of crypto assets may contribute to this dynamic, with corrections in these assets favoring a more general correction in financial asset prices.
The second risk vector has to do with the increased market capitalization of traditional stablecoins like USDT and USDC, forcing their issuers to maintain a high number of supporting assets. This could affect the prices of these “safe” assets in the event of an accelerated recovery due to market conditions.
Regulation still not there
The report goes on to explain that while these cryptocurrency assets pose significant risks to the global economy, regulation is still evolving and these concerns have not been comprehensively addressed. Spain does not have the ability to regulate cryptocurrencies and only recently issued a set of rules and recommendations for advertising campaigns related to these elements.
The document clarifies the following:
Given the lack of a dedicated national regulation for crypto assets, the Bank of Spain is currently unable to regulate, authorize or oversee the operation of crypto asset markets or their participants.
Spain and other countries in the EU are awaiting the approval of MiCA, the regulatory framework for crypto asset markets, which recent reports will appoint supranational bodies to oversee cryptocurrency operations in Europe.
What do you think of the Bank of Spain’s recent report on the risks cryptocurrencies pose to the global economy? Tell us in the comment section below.
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