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FSB labels crypto as an ‘unreliable store of value’ needing ‘robust regulation’

FSB labels crypto as an 'unreliable store of value' needing 'robust regulation'

Although the cryptocurrency sector is expanding and digital assets like Bitcoin (BTC) are becoming more accepted, some financial regulators are distrustful and are seeking ways to impose more control over them, especially in light of the crisis they have endured recently.

Specifically, the Financial Stability Board (FSB) – the international body that monitors and makes recommendations about the global financial system – has called the novel asset class an ‘unreliable store of value’ in need of ‘robust regulation’, according to the regulator’s letter to the G20 finance ministers and central bank governors dated on July 11.

The letter issued a warning about the global financial system’s pre-existing vulnerabilities illuminated by the increasing inflation, decreased growth, and tighter global financial conditions, as well as that these circumstances could cause further problems.

In the part of the letter that covers cryptocurrencies, the FSB stated that:

“The sharp fall in market values has, once again, shown that crypto-assets are heavily exposed to swings in market confidence, which makes them an unreliable store of value.”

Underscoring the need for strong regulation

According to the letter, the recent crisis in the crypto market “highlights the importance of advancing the ongoing work to address the risks posed by crypto-assets” and “brings into sharp focus their intrinsic volatility, structural vulnerabilities and the issue of their increasing interconnectedness with the traditional financial system.”

In order to prevent the potential major financial damage and loss of market confidence caused by the spillover from a single crypto market player’s failure:

“The FSB is working to ensure that crypto-assets are subject to robust regulation and supervision and will continue to coordinate regulatory initiatives in this area. (…) We are also analysing the financial stability implications of decentralised finance.”

As Finbold reported earlier, FSB was working on unveiling global crypto regulations by October 2022, referring to the planned regulations as ‘robust’, in response to the recent crypto sector turmoil that saw most investors suffering heavy losses. The most recent letter is an update to this work.

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