FSB’s New Crypto Asset Market Analysis Spotlights 4 Vital Risk Areas to Improve Upon
Financial Stability Board Recommends 4 Areas Crypto Needs To Clean Up
The Financial Stability Board (FSB) has identified four areas of crypto development it says if not cleaned up may disrupt the security of financial markets.
The FSB says it is an international body that monitors and makes recommendations about the global financial system.
As contained in its recently released report, the FSB said it does not consider cyptocurrencies money or a store of value because of its volatility preferring to refer to it as “crypto-assets”.
In the report “Crypto-asset markets: Potential Channels for Future Financial Stability Implications,” the organization said a close eye should be kept on crypto-asset price volatility.
A case in point is the surge recorded by the combined market capitalization of crypto-assets at an estimated $830 billion — of which approximately 35% was attributable to Bitcoin. This later dropped to just above $210 billion as of October 4, 2018.
The report further warns that these “problems are exacerbated when crypto-assets are not backed by an accountable entity that can be bound by regulation and held responsible for potential breaches of regulation.”
The second issue of concern according to the report is that market liquidity would remain a risk as long as “ownership of crypto-assets” remained “concentrated among relatively few market participants.”
From their point of view, this lack of spread in cryptocurrency ownership limits liquidity, market depth, and the ability for the overall market to sustain larger trading volumes. Illiquidity and the potential for manipulation on unregulated exchanges were also mentioned as persistent threats.
The FSB also called for more meaningful regulation of crypto-assets. One survey estimated that “nearly 20% of crypto-asset owners used debt to finance purchases,” and trading on margin is readily available to novice investors on a range of crypto-asset exchanges.
Technological and operational risks formed the fourth area of focus. This category drew sharp criticism regarding the lack of governance, regulation and security protocols that would prevent exchange hacks and capital loss for investors.
Finally, the FBS believes that for the time being, the “risks to global financial stability are not significant at present, given the limited size of crypto-asset markets relative to other financial markets”. The report also seemed to suggest that in the event of a total market implosion, traditional markets would be shielded from shrapnel as “the limited interconnectedness between crypto-asset markets and the regulated financial system.”