Crypto assets like bitcoin could soon pose a risk to the wider financial system, a deputy governor of the Bank of England has warned.
Jon Cunliffe said that regulators needed to have the right regulation in place.
“The point at which [crypto assets] pose a risk is getting closer. I think regulators and legislators need to think hard about that,” Mr Cunliffe told the BBC.
“On the regulation on the management of crypto assets… we need to start working to ensure the regulation is there.”
Cryptocurrency markets have swelled to almost $3 trillion (£2.2 trillion), according to the Coin Market Cap website which tracks the value of digital coins.
There are growing fears about potential harm to ordinary investors who have little recourse if they fall victim to scams, fraud or market manipulation.
Regulators have been slow to react to crypto’s rapid rise but are beginning to wake up to the dangers.
This month, a report by a US Treasury Department body named stablecoins – a type of digital asset that is supposed to be pegged to the value of a traditional currency – as one of the biggest threats to the financial system.
The Presidents’ Working Group on Financial Markets recommended “urgent” legislation to ensure that issuers of stablecoins are regulated like banks.
US regulators have taken a tougher stance on stablecoins, including Tether, the largest of the assets by far with some $76bn of tokens in circulation.
Tether – the company behind the stablecoin of the same name – has reached multimillion dollar settlements this year with both the New York Attorney General (NYAG) and the Commodities and Futures Trading Commission (CFTC). Both organisations found that Tether’s claims that its currency was fully backed by US dollars held in reserve were not true.
Tether is also reportedly under investigation by the Securities and Exchange Commission (SEC). The company and its executives deny wrongdoing.
Bank of England governor Andrew Bailey warned last year that crypto assets could be worthless and that investors risk losing all of the money they put in
The Bank plans to launch a consultation next year into creating its own digital currency, dubbed “Britcoin”.
The Bank will work with the Treasury to judge the need for a UK Central Bank Digital Currency (CBDC), it said in a statement last week. However, it said any currency would not exist until 2025 at the earliest.
The consultation will look at what further work needs to be done to develop the necessary technology to support the digital money.
