Cryptocurrency or crypto is any type of decentralized digital money designed to be used over the internet.
Cryptocurrencies — like, for example, Bitcoin and Ethereum — are decentralized, which means they are not controlled by governments or other central bodies.
But crypto is also incredibly volatile: It’s value changes quickly and crypto markets are essentially unregulated.
According to Jon Cunliffe, the Bank of England’s deputy governor for financial stability, this could be a major issue in the coming years. In fact, Cunliffe claims, crypto could spark a major financial crisis.
Read more below.
Dire Warning
In a speech on Wednesday, Cunliffe argued that regulation is necessary if the world wants to avoid a financial crisis like the one that took place in 2008, as reported by CNBC.
"When something in the financial system is growing very fast, and growing in largely unregulated space, financial stability authorities have to sit up and take notice," he said of crypto.
According to Cunliffe, crypto assets pose a threat to the global financial system because most of them "have no intrinsic value and are vulnerable to major price corrections."
Volatility
As CNBC noted, Bitcoin and Ethereum — which are the largest cryptocurrencies in the world — lost more than 30 percent of their value earlier this year, but then recovered.
As extremely volatile assets, they can be impacted by all sorts of triggers, including comments from Tesla CEO Elon Musk or Chinese Communist Party’s actions.
"The crypto world is beginning to connect to the traditional financial system and we are seeing the emergence of leveraged players," Cunliffe explained.
"And, crucially, this is happening in largely unregulated space," he added.
Regulation
Regulation is key to preventing a massive financial crisis, Cunliffe stressed.
"Although crypto finance operates in novel ways, well-designed standards and regulation could and should enable risks to be managed in the crypto world as they are managed in the world of traditional finance," the expert explained.
"Technology and innovation have driven improvement in finance throughout history. Crypto technology offers great opportunity. But it has to be a truly better mousetrap and not one that simply operates to lower standards — or to no standards at all," he concluded.
Other Experts Agree With Cunliffe
Experts around the world agree with Cunliffe’s assessment.
In a September interview with Yahoo Finance, U.S. Treasury official Michael Hsu said that the crypto industry must "evolve" if we want to evade a financial crisis.
Hsu, who is the acting Comptroller of the Currency, said that "we are at a point where there need to be some adults in the room that guide this industry into a more responsible place."
"I’m telling the industry today, you know what best practices are. You should impose that on yourselves now before there’s a crisis and people lose money," he cautioned.
]]>The Inquisitr
