Jon Cunliffe, Britain's Deputy Governor of Bank of England. REUTERS/ Jonathan Brady/Pool
According to Jon Cunliffe, Bank of England, a crash in crypto market would be "plausible" due to the volatility of the area.
He called for regulation of digital assets and said it was a matter of "urgency."
Cunliffe warned about the dangers of DeFi at a conference that was reported by Reuters.
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According to Jon Cunliffe, Deputy Governor of Bank of England, a crash in the cryptocurrency market was "plausible". Therefore, regulatory clarity is essential.
"Such an eventual collapse is definitely possible, given the lack intrinsic value and subsequent price volatility, the possibility of contagion among cryptoassets and the cyber and operational vulnerabilities and of course the power of herd behaviour," he stated during a speech to the SIBOS conference.
The market capitalization for digital assets has risen to over $2 trillion in the past year. However, this emerging space is still highly unregulated. Authorities around the world are working together to improve oversight.
In its Tuesday report, the International Monetary Fund warned of the increasing risks to the space. This included fraud, excessive speculation and possible "runs" on assets that appear more stable. China, however, imposed a blanket ban on all cryptocurrency transactions in September.
Cunliffe, for his part, said that the digital asset market is similar to the US mortgage market which brought the global economy to its knees. He pointed out that the sub-prime market was worth around $1.2 trillion in 2008.
Decentralized finance or DeFi was also mentioned by him. He said that England's central banks has started to manage risks and protect consumers. DeFi can be used to describe a variety of applications, including lending, borrowing and trading, as well as saving, derivatives, options and stocks. It is a term that encompasses all those who use public blockchains or crypto assets to disrupt traditional financial markets.
He still sees potential for cryptocurrencies but needs to be able to set clear rules.
He stated that "Indeed bringing the crypto-world within the regulatory perimeter will help to ensure that the potential very large benefits of the use of this technology in finance can flourish and sustainably." It is urgently needed.
According to a June survey conducted by the Financial Conduct Authority, around 2.3 million people in the UK have cryptoassets. Although the percentage of respondents who considered crypto trading to be gambling has fallen, it is still more than one-third. However, a growing number of people see digital assets as complementing or alternative to mainstream investments.
