Bank of England calls crypto collapse a "plausible scenario"

The Bank of England considered the collapse of the cryptocurrency market a "plausible scenario" and pointed to the need for urgent development of the regulatory framework for digital assets. This was stated by the Deputy Governor of the regulator Jon Cunliffe.

The official called the risks posed by cryptocurrencies "still limited" to financial stability. At the same time, he noted their growing "integration into the traditional financial sector."

The Bank of England official estimates that the cryptocurrency market will grow by 200% to $2.3 trillion in 2021. 95% of cryptocurrencies, including bitcoin, are not backed by fiat or other assets, according to Cunliffe.

"Сryptocurrency market collapse is certainly a plausible scenario, given the lack of intrinsic value and consequent price volatility, the probability of contagion between cryptoassets, the cyber and operational vulnerabilities, and of course, the power of herd behaviour"

The connection between cryptocurrencies and the traditional financial system are growing as big investors, hedge funds and banks become more involved in the space, according to the Central Bank spokesman.

According to Cunliffe, "the highly decentralised and global structure of the DeFi sector along with the difficulty to trace end users provide a unique set of challenges for regulators". So the Bank of England has begun working on how to ensure that risk in the DeFi world is managed "to the same standards as they are managed in traditional finance."

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