Experts at the Bank for International Settlements (BIS) published a bulletin, in which they examined the risks associated with cryptocurrencies and proposed three potential courses of action for regulators.
In a document titled “Mitigating risks in the crypto industry: outlining the options,” BIS specialists noted:
- Recent high-profile failures in the sector (Terra, FTX and others) have sharpened the debate over the appropriate response to the risks associated with it, including regulation;
- The contagion has not affected traditional markets, but as retail and institutional participation grows, the situation could change;
- “shadow finance” functions of crypto markets have many vulnerabilities inherent in traditional finance (TradFi), which are exacerbated by the peculiarities of digital assets.
The authors of the document see three avenues for authorities to counteract the risks in the crypto industry:
- a ban on certain types of activity in the industry;
- isolation from the TradFi sector and the real economy;
- the application of regulation that applies to the traditional financial sector.
Experts regard these options as not mutually exclusive and allow for their combination or blending.
“The most important element to consider when choosing is the ability to ensure compliance with any new rules, including the resources necessary to do so,” BIS experts emphasised.
They also expressed confidence that central banks and authorities can make TradFi more attractive for consumers and business as the crypto industry evolves. The key to this, the experts say, is to promote sensible innovations using CBDC.
Earlier, Nigel Green, CEO of deVere Group, urged participants at the annual World Economic Forum in Davos to regulate cryptocurrencies.
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