A warning has been issued by a consortium of bank regulators through a statement that said crypto-currency could have massive implications for the financial sector. The statement read;
“The continued growth of crypto asset trading platforms and new financial products related to crypto assets has the potential to raise financial stability concerns and increase risks faced by banks.”
According to the statement, the group of regulators warned that cryptos do pose a number of risks for existing bank institutions. Among the risks listed in the report include a threat by crypto to bank liquidity, credit, market, and operational risk, with the potential to increase the cases of money laundering as well as terrorism financing. The Basel based consortium of banks also believes that crypto-currencies will present an alternative for fraud.
The Basel based group not only highlighted so called dangers that cryptos posed to the banking sector through their report, they also mentioned to the problematic nature of the crypto markets, specifically pointing a finger at the frequent price swings of the market. While Bitcoin may be currently going through its lowest price volatile in 4 months, the Basel group is spot on in pointing out the volatility of crypto markets compared to traditional asset markets and currencies.
Though the Basel report is correct on the volatile nature of crypto markets, it fails to acknowledge the existence of stable coins and their increased adoption throughout the past year- a notable stablecoin development being Facebook’s stablecoin development for their whatsapp- which provides an alternative crypto-currency in disrupting current market conditions. It’s quite interesting that the Basel report focused on the negative risks of crypto-currency while completely failing to address the use of stable coins.
The Basel consortium went on to urge banks to begin putting in place technical expertise to counter the potential threat of crypto-currency saying;
“Banks are expected to implement risk management processes that are consistent with the high degree of risk of crypto-assets. Board and senior management should be provided with timely and relevant information related to the bank’s crypto-asset risk profile,”
The group also urged banks to disclose their crypto-asset exposure in an attempt to reduce client risk. While 2018 was the year of severe crypto winter which saw most cryptos drop in price by more than 80%, the story of 2019 has one of adoption. This is because while the prices are still in the rut, developers are working hard to find real world uses of cryptos as well as finding avenues that are not severely reliant upon coin valuation.
The Basel report will come as no surprise for crypto enthusiasts since mainstream financial institutions have long regurgitated the negatives of crypto adoption, repeatedly pointing out how cryptos can be used for crime, particularly money laundering as well as Terrorism financing. It remains to be seen how financial institutions that are finally beginning to warm up to crypto will react to the Basel report.
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