BIS: Cryptocurrencies React Strongly To Regulatory Events And Not Pose a Global Financial Stability Risk
The Bank of International Settlements (BIS) has recently divulged a new report that outlines that crypto market in which it affirms that cryptos do not pose a risk to the stability of the financial system (which contradicts an earlier statement from the bank) and that their price is heavily tied with regulatory events.
This document was released as a quarterly review for 2018 on the matter. The author of the documents is Raphael Auer, Principal Economist in the Monetary Policy unit of the BIS, and Stijn Claessens, head of the Financial Stability Policy department.
The Impact of the Headlines In The Crypto Price
The study has revealed that the price of the cryptocurrencies is heavily tied with the price from news regarding their national regulations. While this industry is attempting to work outside of the realm of regulations, they are one of the main points to affect its price. Because of this, positive regulation news turn into market gains while the negative ones do not.
Any kind of event that has any relation to frameworks for the development of the industry or for Initial Coin Offerings (ICOs) will certainly affect the price of the cryptocurrencies. The report concludes that the gains are mostly because the markets rely on regulated financial institutions, in the end, so they have power over them.
The report has also affirmed that BTC and ETH face meteoric price swings due to their volatility and that this has raised issues among regulatory bodies over the world. Because of this, it is natural that national regulations will affect the price.
One of the strongest affirmations of the bank is that cryptocurrencies are, in fact, dependent on the financial market, a notion that most crypto evangelists loathe. While most crypto enthusiasts state that they do not necessarily “rely” on regulated financial institutions, the specifics pale when you take into account that the industry has such a high influence of this area.
Without the governments enabling them, it is impossible to turn cryptocurrencies back into fiat currencies, so it can be a big problem for the holders as their money may become worthless if they are unable to translate it to fiat and the whole market loses faith in cryptos.
It is important to note that the crypto market needs approval for a BTC ETF, for instance, and that the price has fallen 16% right afterward the SEC decided not to approve it. There is also the fact that bans on trading like the one China did are likely to affect the price and that people will likely be impacted if they are unable by the legislation to trade freely.
Not a Great Risk
It is also important to notice that the BIS has decided to go back at its stance that cryptos will most likely be an “environmental disaster” and affirm that they do not offer any risk for the financial market.
The head of the bank, Agustin Carstens, has initially called Bitcoin a “combination of a bubble, a Ponzi scheme and an environmental disaster” but it looks like the bank feels considerably more tranquil with BTC right now, even if some prior reports stated that it was risky for the financial system and that people should be cautious before investing in Bitcoin.