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The Bank of England (BoE) is calling for stricter regulations on crypto after the recent market downturn to safeguard against the potential financial stability risks they could pose.
BoE Calls for Stricter Regulations
According to the BoE’s Financial Stability Report on Tuesday, the recent plunge in crypto assets exposed vulnerabilities in the market, which include “liquidity mismatches leading to run dynamics and fire sales, and leveraged positions being unwound and amplifying price falls.”
The bank pointed out the recent market downturn which saw the entire crypto assets market cap dropping to $900 million from its $3 trillion all-time high last November.
The central bank noted that the falling crypto market does not pose a risk to financial stability yet, but could do so if crypto activities become more connected to banks and other traditional financial institutions.
“This underscores the need for enhanced regulatory and law enforcement frameworks to address developments in these markets,” the BoE said.
More Crypto Regulations
The crypto market has been in turbulence since the infamous Terra LUNA crash. The bear market has forced many firms to reduce their headcounts while some lending platforms like Celsius and Voyager have suspended withdrawals.
The current state of the market has caused global regulators to take steps geared towards introducing stricter regulations to protect investors against potential risk. In May, the U.K. Treasury amended existing rules that will give the BoE more power to oversee stablecoin issuers to prevent future risks.
Last month, officials from the European Union (EU) agreed on the Markets in Crypto-Assets (MiCA) regulation to protect investors and preserve financial stability. MiCA covers issuers of unbacked crypto assets, stablecoins, trading venues, and crypto wallets.
Meanwhile, in another development, the BoE’s Deputy Governor, Jon Cunliffe, likened the current crypto market crash to the dot-com crash of the late 1990s, saying that the survivors could become tomorrow’s Amazons and eBays. Cunliffe noted that no matter what happens in the coming months, crypto assets will continue to exist.