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As some of you who’ve invested in Bitcoin know, the price curve has gone through some steep inclines and quick descents the past couple of years. And it is not just the price of Bitcoin that resembles a rollercoaster. The crypto-ecosystem itself also continues to evolve rapidly and in different directions. It is not just some retail investors that are ‘dipping their toes’ into crypto. Large institutional parties continue to show serious interest in crypto-assets and its underlying technologies.
In its role as ‘guardian’ of global financial stability, the FSB has been closely monitoring crypto-asset markets since 2018. While we have been working hard to address crypto’s potentially systemic implications, we do recognize the possible benefits of this innovation. In our opinion, effective regulation should create the right conditions for innovation to unfold in a responsible manner. Being technology neutral forms a guiding principle of the FSB’s recommendations.
In recent years we have for example seen the potential benefits of distributed ledger technology. We have also seen that these benefits will not be realized without the comprehensive regulation of financial activities built on top of this technology.
For the FSB, supporting effective regulation of crypto-assets has so far meant addressing the risks related to it. Since 2018 we have repeatedly expressed concern about the risks associated with crypto’s fast evolving nature and its growing interconnectedness with traditional finance. As
an example, some of crypto’s inherent financial vulnerabilities became painfully apparent during the crypto-winter of 2022 and 2023. Think only of the spectacular rise and fall of FTX.
The authorities represented at the FSB have taken important steps to effectively regulate crypto-related activities – either through the introduction of new rules or through the enhanced enforcement of existing rules and regulations.
In recent years we have also seen that those national initiatives were not always fully aligned with each other. Therefore, the FSB published a Global Regulatory Framework last year, aimed at supporting the consistency and comprehensiveness of regulatory approaches to crypto-asset activities. But the job is not done yet. ‘Crypto’ is at a cross-roads, and if society wants to stay on the path towards responsible innovation, we cannot be complacent.
Let me highlight two interesting market developments.
First of all, the emergence of so-called ‘multifunction crypto-asset intermediaries’, or MCIs. This has shown that crypto may not be as decentralized as some claim it to be. These entities combine economic functions in a manner that is not commonly seen in traditional finance. We also find that most MCIs lack proper governance. As a result, the functioning of MCIs may actually amplify financial vulnerabilities.
MCIs can also form nodes that link the crypto-ecosystem with the broader economy and investors. This means that, at a certain scale, their failure could have serious implications for the wider financial system. A key policy lesson we thus learned is that, if needed, these entities should be able to be wound down in an orderly manner: memento mori, or in this case, remember that you may fail.
Next to MCIs, we have seen revived interest in the stablecoin market, following earlier crypto-market turmoil. Some of this interest has come from BigTechs and traditional financial institutions. These institutions could leverage large existing customer bases and rapidly issue a more widely used stablecoin. The potentially significant systemic implications of such a stablecoin means that they require careful regulation and oversight. After all, these coins have proved to not always be that ‘stable’...
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