The Bank of England has issued a warning that the values of risky assets, including cryptocurrencies, remain susceptible to further rapid revisions in the face of imminent recession risks, fresh supply shocks, and faster-than-anticipated monetary policy.
The Bank of England has cautioned that risky assets, such as shares and cryptocurrencies continue to be susceptible to severe price fluctuations.
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Additionally, the Bank of England has emphasised the need for strengthened regulatory and law enforcement structures.
BOE Warns Cryptocurrency Could Fall Further
The Bank of England has issued a warning that conventional and cryptocurrency markets may continue to suffer.
The Financial Policy Committee of the central bank said in a report released on Tuesday that the deteriorating economic outlook had produced significant volatility in the markets in recent months, resulting in sharp declines in the value of risky assets such as shares and cryptocurrencies. According to the study, the crypto market decline has revealed a number of market weaknesses that do not constitute a threat to global financial stability but do emphasise the need for better rules and enforcement. As paragraph read:
“A number of weaknesses comparable to those disclosed by previous bouts of volatility in more conventional areas of the financial system were exposed in crypto-asset markets. These include liquidity mismatches that cause run dynamics and fire sales, as well as the unwinding of leveraged holdings, which intensifies price declines. The trust of investors in the capacity of many so-called “stablecoins” to keep their pegs was dramatically undermined, especially for those with no or riskier underlying assets and less transparency. These incidents pose no threat to the broader financial stability.”
BOE also stated that systemic concerns for the larger economy may develop if crypto’s popularity and linkage with the conventional banking system continued to increase. This, as stated by the central bank, highlights the need for “increased regulatory and law enforcement structures” to handle the rise in these markets and activities.
While the BOE advocated for tougher crypto regulation, it did not propose any new regulations for conventional assets like equities. Notably, the stock market has lost more than $11 trillion since the beginning of the year, which is almost 3.6 times the highest value of the cryptocurrency market.
Numerous so-called blue-chip technology businesses, including Meta, Netflix, PayPal, and Shopify, have had year-to-date stock price drops of 52.7%, 69.8%, 63.33%, and 77.7%, respectively without garnering regulatory notice. Bitcoin is down almost 55% during the same time span.
Despite the already substantial market drop, the BOE emphasised that stocks and cryptocurrencies may continue to suffer. “Given downside risks from additional supply shocks, faster-than-anticipated monetary policy tightening, and slower-than-anticipated economic growth, the prices of risky assets remain susceptible to further sharp adjustments,” the report stated.
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