Bank of England: Crypto Needs Enhanced Regulatory and Law Enforcement Frameworks

Bank of England: Crypto Needs Enhanced Regulatory and Law Enforcement Frameworks

The Bank of England says “extreme volatility” in the crypto market “underscores the need for enhanced regulatory and law enforcement frameworks.” The British central bank has warned that crypto prices could fall further.

Bank of England Calls for Enhanced Crypto Regulation

The Financial Policy Committee of the British central bank, the Bank of England (BOE), said Tuesday that the “extreme volatility” in crypto prices in recent months underscores vulnerabilities in the crypto market, Bloomberg reported.

Citing a $2 trillion reduction in the total market capitalization of crypto assets, the Bank of England stressed the need for tougher law enforcement and regulation for the crypto sector, the publication conveyed. The market cap of all cryptocurrencies currently stands at about $1 trillion. It was nearly $3 trillion at its peak in November last year.

Last month, Agustin Carstens, the general manager of the Bank of International Settlements (BIS), said all the weaknesses in the crypto market “that were pointed out before have pretty much materialized.” They include liquidity mismatches and participants unwinding leveraged positions.

Warning that the crypto market could decline further, the British central bank said:

This underscores the need for enhanced regulatory and law enforcement frameworks to address developments in these markets.

While noting that the volatility in the crypto market is not currently posing a risk to the stability of the U.K. financial system, the central bank cautioned that systemic risks would emerge if crypto activity and its interconnectedness with the traditional financial system continue to grow.

Last month, the president of the European Central Bank (ECB), Christine Lagarde, similarly said: “Crypto assets and decentralized finance (defi) have the potential to pose real risks to financial stability.”

Bank of England’s deputy governor for financial stability, Sir Jon Cunliffe, has said on several occasions that the cryptocurrency market could pose a threat unless urgently regulated. He warned in May of hard times ahead for cryptocurrency investors as the Federal Reserve and other central banks tighten monetary policy. In December last year, he said that crypto prices could fall to zero.

Andrew Bailey, the governor of the Bank of England, said in June that investors should be prepared to lose all their money when investing in crypto assets. He stressed that cryptocurrencies do not have intrinsic value and bitcoin is not a practical means of payment.

What do you think about the comments by the Bank of England? Let us know in the comments section below.