Financial Stability Board says crypto is risky for traditional Market

The Financial Stability Board noted that the crisis in the Crypto space may further result in risks for the traditional Market also. 

Despite the volatility in the prices of cryptocurrencies, people are adopting them to make huge profits in fewer time intervals. However high-level adoptions can be seen by many government agencies directly but adoption in any mode of this industry is resulting in some big challenges for the lawmakers. 

On 16 February, the Financial Stability Board published its research regarding the negative challenges and impact of Crypto assets adoption and Circulation in the world. 

According to the Board, there are many Vulnerabilities in the crypto industry and these vulnerabilities may lead to some highly significant economic crises, further, it will result in a risk for the traditional market also. 

Board noted that there are many vulnerabilities namely unbacked digital assets like stablecoins, Bitcoin, and also many Defi and trading venues (futures & derivatives trading). 

Board pointed toward the growth of the global trading market cap, which is near to $2.6 trillion as of 2021. And this global market is continuously increasing, so it “could have implications for global financial stability.”

The report asserted that increasing adoption of stable coins ( USDT, USDC like coins which are pegged by the US dollar), despite huge regulatory scrutiny may lead to a bigger risk. According to the board, the traditional market and crypto market are trying to overlap with each other, and such cross-connections further impact the traditional money market. 

According to research, if Stablecoins go through a big risk then it will result in a big negative impact on the Defi market because stable coins are only a way to do trade in Defi platforms, while many centralized crypto exchanges are dependent on fiat currencies based trading.

“Were a major stable coin to fail, it is possible that liquidity within the broader crypto-asset ecosystem.”

Report further added: 

“This could also spill over to short-term funding markets if stable coin reserve holdings were liquidated in a disorderly fashion.”

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