Crypto crash could threaten global financial stability, ECB warns
A continued sell-off frenzy in crypto could threaten the stability of global financial markets, the European Central Bank has warned today.
In its bi-annual financial stability review published today, the ECB said that a “deepdive” into the market had revealed evidence that crypto asset leverage and crypto lending were becoming more risky, and deepening ties with banks and asset managers posed a risk to financial stability.
“Investors have been able to handle the €1.3tn fall in the market capitalisation of unbacked cryptoassets since November 2021 without any financial stability risks being incurred,” the ECB said.
“However, at this rate, a point will be reached where unbacked cryptoassets represent a risk to financial stability.”
The warning from the ECB come after a plunge in the overall value of the market in recent weeks, with the flagship currency Bitcoin shedding nearly a quarter of its value since the start of May.
Bitcoin is currently trading at £23,400 having plunged over £20,000 since its November peak.
The ECB said trading volumes of crypto in recent years “have at times been comparable with or even surpassed those of the new York Stock Exchange or euro area sovereign bond quarterly trading volumes.”
Regulators and central banks have been ramping up their warnings over the threat they pose consumers and financial markets, however, as trading of the currencies swell.
In an interview over the weekend, governor of the Bank of England Andrew Bailey said that crypto currencies have “no intrinsic value”.
“I am probably not liked by the advocates of Bitcoin because I have said I don’t think it has any intrinsic value,” he said. “It can have extrinsic value in the sense that people want to own it – people collect all sorts of things – but it doesn’t have intrinsic value.”
His comments chime with those of ECB President Christine Lagarde over the weekend who told Dutch talk show that the assets had no value.
“My very humble assessment is that it is worth nothing,” Lagarde said in an interview. “It is based on nothing. There is no underlying asset to act as an anchor of safety.”
The UK’s top financial watchdog the FCA has similarly looked to put a dampener on the frenzied take-up of crypto by retail investors, with chief executive Nikhil Rathi warning that backers of crypto need to be prepared to lose all their money.