By Kelvin Chan, AP Business Writer
LONDON (AP) – The Bank of England warned on Tuesday that the recent cryptocurrency meldown, which has erased more than $ 2 trillion, highlights the need for tighter financial regulation.
The UK central bank said the crashes revealed weaknesses in the crypto market, reminiscent of previous financial instability.
Extreme volatility in the crypto market, including so-called stablecoins, has led to “fire sales” and rising prices, the bank said in its most recent financial stability report.
Although overall financial stability has not been threatened, the bank is concerned that “systemic risk” will increase as cryptocurrencies become more involved in the financial system and calls for “enhanced regulatory and law enforcement structures”.
“Technology does not change the economy and the law on money and risk,” Deputy Governor for Financial Stability John Canleef told a news conference. “We now need to bring in regulatory measures that will handle those risks in the crypto world in the same way we handle them in the conventional world.”
Bitcoin and other cryptocurrencies have declined this year, with the total value of cryptocurrencies falling from $ 3 trillion to $ 900 billion by the end of 2021, the bank said.
One of the biggest disasters involved a stablecoin terra, which exploded in May, erasing the value of several billion dollars with little or no accountability. Among cryptocurrencies, stablecoins were seen as a safe bet because their value is usually determined by a government-backed currency such as the US dollar or gold.
Officials across Europe are stepping up scrutiny of the cryptocurrency industry.
The UK Treasury has proposed controlling stablecoins that are used as payments. Last week, 27 member states of the European Union bloc signed a tentative agreement for a sweeping regulation package that the main negotiator of the agreement called the “wild west of the crypto world.”
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