The Bank of England has expressed worries over the continued sell-off in the crypto space, which has so far plunged by over $2 trillion. According to the BOE, the current realities in the crypto market underscores the vulnerabilities in the market, calling for tougher law enforcement and regulations of crypto activities.
The BOE’s Financial Policy Committee stated that the continued sell-off in the crypto market has so far seen its total market capitalization drop to nearly $900 billion from almost $3 trillion in late 2021.
The insane volatility currently being experienced in the crypto market reveals weakness in the market, including mismatches that have triggered panic selling and investors closing leveraged positions. The BOE believes that the extreme volatility in the crypto space coupled with other factors have the potential to amplify further sell-offs.
Regulators in the EU and UK have taken a hardline stance against activities in the industry, stating unequivocally their concerns that crypto activities could damage the broader financial system if nothing is done.
In December, the BOE stated that the rapid growth being experienced in the crypto market poses a significant risk to the stability of the UK’s financial systems. In October last year, BOE Deputy Governor John Cunliffe made his position clear about crypto regulations stating that unless something is done urgently, crypto poses a significant threat to the country’s economy.
While the BOE further clarified that the recent volatility in the crypto market isn’t posing any significant threat to the overall system, it believes that if actions are not taken, systematic risks could emerge, especially as cryptocurrency activities continue to gain widespread acceptance.
All these underscores the apex bank’s position on the need for robust regulation and law enforcement frameworks to address the advancement in these markets.
As of the time of writing this report, comments from the BOE haven’t had a ripple effect on the crypto market as the market continues to recover slightly from last week’s sell-offs
Elsewhere, the EU is working on regulating crypto activities in the region. While there isn’t any concrete information on this, we expect consultations to continue.