International Regulators Hope to Beat Crypto to the Punch with New FrameworkJul 18, 2018, 10:46AM
The growing integration of cryptocurrency-based technologies into other areas of the economy make oversight more important than ever.
International regulators have published a framework for monitoring risks in the cryptocurrency sector in a move designed to identify potential problems before they threaten global financial stability. According to the FSB, an organization which coordinates financial regulation for the G20 economies, the framework focuses on how risks from cryptocurrency markets could spread to other parts of the financial system.
Cryptocurrency Is Joining the Mainstream Economy
The cryptocurrency sector has long existed in a regulatory grey area, and there has been a lack of clarity about how to apply financial rules to digital assets. However, the growing integration of cryptocurrency-based technologies into other areas of the economy make oversight more important than ever.
Bitcoin derivatives were recently added to the CBOE and CME, and there are plans to build entire cities based on these volatile digital assets. These moves may give cryptocurrency price action greater influence on other parts of the economy. The board told Reuters,
Monitoring the size and growth of crypto-asset markets is critical to understanding the potential size of wealth effects, should valuations fall [...] The use of leverage and financial institution exposure to crypto-asset markets are important metrics of transmission of crypto-asset risks to the broader financial system.
The new framework includes cryptocurrency trading volumes, price information and margining data for derivative futures, such as the Bitcoin futures product launched by the CBOE last year. There is also discussion about whether or not to force cryptocurrency lenders to hold capital reserves against their holdings, a proposal reminiscent of traditional banking regulation.
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