- The Financial Stability Oversight Council (FSOC) has raised concerns about the risks posed by the expanding cryptocurrency market
- Stablecoins have been flagged as vulnerable to market runs and lacking comprehensive federal oversight
- FSOC has recommended new legislation to improve the regulation of crypto-assets and ensure market stability
The Financial Stability Oversight Council (FSOC) has used its annual report to highlight concerns about the risks posed by the expanding cryptocurrency market. The FSOC spotlighted stablecoins, in particular, as a key vulnerability due to market concentration and inadequate regulatory oversight. The report emphasizes the need for legislative and regulatory action to address systemic risks and fraud associated with digital assets.
Growing Market, Growing Risks
In its 2024 report, the FSOC noted how the cryptocurrency market has expanded significantly this year, with its global value nearing $2 trillion by mid-2024. The emergence of spot crypto-asset exchange-traded funds (ETFs), valued at $80 billion, underscores increasing accessibility for investors.
Stablecoins, in particular, were highlighted as an issue, with the FSOC warning that they remain vulnerable to runs, a risk exacerbated by market concentration; one entity, Tether, controls 70% of stablecoin value.
The Council further highlighted issues with transparency, as many stablecoin issuers operate outside federal regulatory frameworks. “This lack of oversight increases the risk of fraud and market manipulation,” the report asserts.
FSOC Calls for Comprehensive Legislation
To address these challenges, the FSOC has called on Congress to enact a federal prudential framework for stablecoins aimed at reducing run risks and improving market integrity. Additionally, it recommends extending regulatory authority to oversee crypto spot markets. “Federal regulators need explicit rulemaking authority to address systemic vulnerabilities and protect investors,” the report advises.
As the crypto market continues to grow, the FSOC’s recommendations aim to strike a balance between fostering innovation and ensuring financial stability. The report’s findings are expected to fuel ongoing debates about the future of cryptocurrency regulation in the United States.
