Why is the Bank of England urging global oversight of crypto?

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The Bank of England is urging global oversight of the cryptocurrency sector due to its rapid growth and increasing integration with traditional financial markets, which could pose future risks to financial stability.

The Bank of England's Financial Policy Committee (FPC) has called for enhanced global regulatory and law enforcement frameworks to address the evolving cryptocurrency landscape. This urgency stems from the sector's significant expansion and the potential for its growing interconnectedness with systematic financial institutions and markets to create future risks to financial stability.
Increased Market Size and Integration

The value of cryptoassets experienced a tenfold increase between early 2020 and November 2021, reaching a market size of US$1.7 trillion (RM7.2 trillion). During this period, cryptoassets constituted 0.4 per cent of global financial assets. This substantial growth and integration suggest a growing potential for spillover effects into the broader financial system.
Potential for Systemic Risk

While the FPC currently assesses direct risks to the UK financial system from crypto assets and decentralised finance (DeFi) as limited, it acknowledges that these risks will escalate as cryptoassets become more entwined with systematic financial institutions and markets. The committee differentiates between these potential systemic risks and the dangers faced by individual retail investors.
Growing Retail Adoption and Debt Usage

Concerns are also amplified by increasing adoption among the public. In January, nine per cent of people in Britain held cryptocurrencies, nearly double the figure from the previous year. Furthermore, a separate poll indicated that 14 per cent of cryptocurrency holders had utilised debt to fund their purchases, highlighting potential vulnerabilities for a segment of the population.
Need for Equivalent Standards

In response to the growing adoption and the functional similarities of some crypto assets to traditional financial tools, the FPC has proposed that these digital assets should be subject to equivalent standards. This recommendation is particularly relevant for stablecoins, which are pegged to fiat currencies like the US dollar and are considered less volatile than other cryptocurrencies.

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Why is the Bank of England urging global oversight of crypto?

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