Could crypto affect the financial stability of markets?

A recent report published by the Financial Stability Board stated that cryptocurrencies could threaten global financial stability. DeFi and stablecoins are highlighted as particular vulnerabilities.

The Financial Stability Board is an international organisation that monitors the financial system and makes recommendations to protect and strengthen it. It collaborates with such bodies as the International Monetary Fund in order to conduct “Early Warning Exercises”.

The report took the following tone:

“Crypto-asset markets are fast evolving and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities, and increasing interconnectedness with the traditional financial system,”

On DeFi, the report underlined how the sector was “providing financial services using both unbacked crypto-assets and stablecoins”. It stated how some platforms operate “outside of a jurisdiction’s regulatory perimeter or are not in compliance with applicable laws and regulations,” leading to potential risks and a “lack of transparency”.

Stablecoins are said by the report to be “exposed to liquidity mismatch, credit and operational risks, which makes them susceptible to sudden and disruptive runs on their reserves.” 

Opinion

What the report doesn’t touch upon is why these particular assets are being used. Surely investors would stay away from such risk, which could result in a “massive collapse” according to a Bank of England official. 

The reason they are being used might well be that the fiat monetary system has a far less likely chance of rising from its current perilous predicament. Add to that the fact that yield has all but disappeared from the financial system, and it leaves no wonder that investors are flocking to crypto in droves.

It must be taken into account that cryptocurrencies will indeed continue to suffer from large volatility swings, given their lack of liquidity from being such nascent assets. But it can certainly be argued that taking bets on the sector isn’t such a bad idea when you consider the horrendously perilous position the fiat monetary system is in.

No analyst outside of government, international financial bodies, and central banks would give tuppence for fiat’s chances over the next few years. Central bank digital currencies appear to be the only way the cavalry might still arrive to save the financial system, but when all is said and done, it is still the same fiat-based ponzi scheme, but dressed up to look like something else.

In addition, who in their right mind would want to accept these banker’s coins, when every single transaction can be spied upon, they can be stopped if they don’t agree with state policy, and bank accounts can be turned off with a keystroke should you be deemed as someone who doesn’t toe the state party line.

Yes, crypto can certainly disrupt financial markets. The financial markets are manipulated to the point that they are prevented from doing their job. All major change usually leads to major upheavals. The death and replacement of the current financial system will be no different.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.