Crypto investments help the ecosystem grow, but the FSB believes an uncontrolled apetite for these technologies could have serious implications.
According to The Financial Stability Board, the growing appetite of large institutions and VC firms for cryptocurrency exposure could prove counterproductive not only for said financial giants but for the entire world.
The watchdog called for exercising greater control over operations that involve significant money investments to avoid a potential financial crisis on a global scale.
The Global Financial Stability Could Be At Risk
In a report published on Wednesday, February 16, 2021, the FSB explained that essential precautions should be taken to ensure the stability of the international financial system in the face of the risks of massive investments in fast-growing technologies with little guarantee of long-term success, such as cryptocurrencies.
“If financial institutions continue to become more involved in crypto-asset markets, this could affect their balance sheets and liquidity in unexpected ways… If the current trajectory of growth in scale and interconnectedness of crypto-assets to these institutions were to continue, this could have implications for global financial stability,”
The FSB notes that despite the accelerated growth of cryptocurrencies, they do not actually account for a significant portion of the money being moved in traditional financial markets. However, they recognize that should the growth rate that has been seen so far persist, there could be a major shift in the conventional financial system – which would, in turn, have severe implications for global financial stability.
Contrary to what many might point out, the FSB mentions that the industry is full of players who don’t really understand how cryptocurrencies work and points to the increase in money laundering, ransomware, and cybercrime as concerns. But in general terms, the report focuses on other risks and vulnerabilities more related to the market aspect, such as liquidity mismatch, unbacked stablecoins,increased use of leverage, and the opacity of regulatory oversight.