Bank of England demands stricter rules for crypto and renewed its concerns about stablecoins as well so let’s read more today in our crypto regulation news.
The Bank of England demands stricter rules for crypto due to vulnerabilities in the market. In the UK Central Bank’s Financial Stability Report, we can read that the crypto asset valuations dropped significantly and plunged from a peak of $3 trillion to $883 billion. It said that the wipeout didn’t pose risks to the financial stability but tougher laws are needed to protect the wider financial system. A number of vulnerabilities were exposed on the crypto markets similar to the ones exposed previously in the more traditional parts of the financial system. The report read:
“These events did not pose risks to financial stability overall. But, unless addressed, systemic risks would emerge if crypto asset activity, and its interconnectedness with the wider financial system, continued to develop.”
The BoE was talking about crypto a lot and in December they warned that the industry can pose a serious threat to the financial system. In April however, the UK government announced more plans to become a global crypto-asset tech hub with stablecoins becoming a form of payment. The UK Central bank said that it will intervene to direct and oversee the stablecoins and their behavior. Stablecoin is a digital asset meant to be more stable than cryptocurrneices such as Bitcoin or Ethereum which are both crashing in value.
Stablecoins are considered to be the backbone of the crypto ecosystem and are pegged to fiat currencies like the US dollar to prevent fluctuations and to help the traders maintain the liquditiy. The coins maintain the pegs in different ways with some like USDC and USDT holding equivalent assets in their reserves. Though perhaps the biggest crypto story of the year was the collapse of Terra’s ecosystem which became worthless in a matter of hours. The algorithmic stablecoin relied on a code to hold its price steady but it ended up losing its peg and hit investors hard.
In today’s reports, the Bank of England said that these assets have to be regulated:
“Absent additional regulation, some stablecoins held to be used for payments may not offer similar protections to the central bank or commercial bank money.”