Watchdog demands digital coin clampdown

CRYPTO assets such as bitcoin are a threat to the world’s financial system, a global watchdog warned.

The Financial Stability Board (FSB) called for a clampdown on digital coins, and the platforms on which they are traded, as it cautioned that they had the ability to send shockwaves through global markets. Currently, crypto assets are not widely used enough to cause a dire problem, the Basel-based FSB said.

But if they carry on growing at their current rate, the risks will ‘rapidly escalate’, it added.

The market value of crypto assets shot up by 3.5 times in 2021 to £1.9trillion, as financial institutions such as investment banks and hedge funds became more interested in trading the coins and buying them for their clients.

The FSB said: ‘If the current trajectory of growth in scale and inter-connectedness of crypto assets to these institutions were to continue, this could have implications for global financial stability.’

Crypto assets cover a range of different digital coins. Some, such as bitcoin, do not have any intrinsic value because they are not linked to any traditional currency or tangible goods.

Others, known as stablecoins, attempt to peg their value to currencies or precious metals.

The FSB said: ‘A disorderly run due to a loss in confidence on a global stablecoin that has reached significant scale could lead to disruptions in the real economy and spillovers into the broader financial system.’

The FSB also pointed out several platforms which allow users to trade crypto assets, and even offer services such as lending, are not regulated by most countries’ financial watchdogs. This ‘underscores the lack of transparency on their activities’, it said.