- Jon Cunliffe has said crypto is a threat to financial stability and could provoke a financial crisis.
- Cunliffe urged lawmakers to step up and regulate the industry.
- Cunliffe believes 95% of cryptocurrencies, including Bitcoin, have no intrinsic value.
Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England (BoE), has said crypto could trigger financial instability.
Speaking at the Sibos conference, Jon Cunliffe asserted that crypto is a threat to financial stability and could provoke a financial crisis if the industry is not regulated. Cunliffe added that while crypto still accounts for a small portion of the global financial system, it poses a contagion risk. He said:
$2.3 trillion of course needs to be seen in the context of the $250 trillion global financial system. But as the financial crisis showed us, you don’t have to account for a large proportion of the financial sector to trigger financial stability problems.
Backing his claim, Cunliffe hinted at how subprime, which had a market cap of around $1.2 trillion in 2008, triggered one of the worst financial crises in history.
Ironically, a recent report by the Bank of England, published merely six days before Cunliffe’s cautionary remarks, noted that crypto markets currently pose “limited risks” to the financial system. “Crypto asset markets continue to grow rapidly, but currently pose limited risk to UK financial stability,” the report asserted.
Notably, in its new Global Financial Stability Report, the IMF also said that crypto-assets, excluding stablecoins, do not yet pose a risk to the global financial system.
Arguably, Cunliffe’s worrying remarks echo the same concerns previously outlined by the Financial Conduct Authority (FCA). Earlier this year, the FCA, which is UK’s financial watchdog, issued a warning against investing in the crypto market, listing five approvably reasonable threats present in the industry.
Cunliffe Asks for Crypto Regulation
Cunliffe concluded that lawmakers need to step up and regulate the crypto industry. He said:
When something in the financial system is growing very fast, and growing in largely unregulated space, financial stability authorities have to sit up and take notice. They have to think very carefully about what could happen and whether they, or other regulatory authorities, need to act.
However, he warned that regulators should “be careful not to overreact.” Cunliffe admitted that regulating crypto would be a tough job, and lawmakers should be attentive when facing the unfamiliar. “We should not classify new approaches as ‘dangerous’ simply because they are different,” he said.
Cunliffe: 95% of Crypto-Assets Have no Intrinsic Value
Cunliffe dedicated a large portion of his speech talking about a category of cryptocurrencies he called “unbacked”: crypto coins that are not backed by other assets or commodities. Cunliffe believes such assets have no intrinsic value. “Bitcoin, of course, is the most prominent example,” he said, adding:
Unbacked cryptoassets make up nearly 95% of the $2.3 trillion…These have no intrinsic value – that is to say there are no assets or commodities behind them: the value of the cryptoasset is determined solely by the price a buyer is prepared to pay at any given moment.
In simple terms, Cunliffe assumes stablecoins are the only type of crypto-assets with intrinsic value.