The United Kingdom’s Central Bank released a Financial Stability Report, where it mentioned the rapid evolution of the crypto industry. The regulator said that domestic and global regulations must cooperate to control the risks of the fast-evolving market of cryptocurrencies. The Financial Policy Committee (FPC)said they pose limited direct risks to the UK’s financial stability.
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From the beginning of 2020, the total market cap of cryptocurrencies has got larger ten times. As of Nov. 2021, the sphere represented about 1% of the world’s finance assets. BoE says innovation may unlock advantages such as increased efficiency and lower frictions. However, the institution says the benefits are possible if regulated.
It mentions that crypto's continuous advancement and interconnection with the broader financial system presents more challenges. The release says that the FPC will watch the industry and make sure that the UK is resilient to the risks that crypto may cause.
The regulator brings an example, where the valuation of cryptocurrencies may result in major investors' selling their other holdings, which will shock the market. BoE said that any future regulatory framework should balance risk mitigation, also supporting innovation and competition.