The Bank of England’s (BoE) Monetary Policy Commission said cryptocurrencies will become vulnerable as market capitalization drops from about $ 3 trillion in late 2021 to $ 900 billion in six months. We believe that the industry needs stricter regulations. Bloomberg News Reported on July 5th.
Central banks report that extreme volatility highlights weaknesses such as the rewinding of leveraged positions and the liquidity mismatch that caused the sale of crypto assets.
According to the BoE, current crypto price volatility does not yet pose a risk to the financial system as a whole, although it can cause significant damage to the market. However, he pointed out that omissions lead to systemic risk as the connection between the crypto market and banks and other markets continues to grow.
The bank said:
“This underscores the need for a stronger regulatory and law enforcement framework to address the development of these markets.”
BoE on Volatility
The Bank of England has previously talked about the potential of the crypto market, expressing concern about volatility.
Jon Cunliffe, Deputy Governor of Financial Stability at the BoE, commented on the potential of the industry:
But he went on to add that cryptography is far from being properly integrated with traditional systems due to its volatility.
Current volatility carries the risk of price drops to zero, preventing cryptography from being integrated into the financial system and maximizing its potential. For full integration, banks need to mitigate these potential losses.
Therefore, the BoE argues that the risk of falling to zero should be eliminated first, and the best way to do this is to introduce strict regulations.
According to an announcement in March 2022, central banks are already working on cryptographic regulations in the region.
Current bear market
A recent Glassnode report has shown that the current bear market is the worst in the history of cryptocurrencies. This is the first bear market where Bitcoin and Ethereum have traded below ATH from the previous cycle.
According to the report, the bear market in 2022 is:
“”[] It is one of the least serious, if not the most important, capital outflows and losses realized by investors, both in the severity, depth and scale. “