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Saturday, February 4, 2023

Bank of Spain Report Warns About Cryptocurrency Usage and Its Effect on Financial Stability

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Bank of Spain Report Warns About Cryptocurrency Usage and Its Effect on Financial Stability – The Bank of Spain has developed a new report in which it expresses concern about the rise of the cryptocurrency economy and its potential impact on the traditional economic system. 

According to the paper, while the crypto market is still regarded as limited, its exponential expansion and the fact that the majority of the market’s value is derived from digital assets with no support may pose hazards to the global economy.

The expanding links between bitcoin and the traditional economy explain this systemic danger. The Bank of Spain considers two possible vectors in this regard. The first is due to these assets’ higher volatility and linkage with traditional markets. 

Also Read: US Lawmakers Call for More Oversight of Cryptocurrency’s Environmental Impacts

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The document details:

“Crypto assets’ high volatility may add to these dynamics, with corrections in any of these assets favoring a broader correction in financial asset values.”

The second risk vector stems from the high market capitalization of traditional stablecoins such as USDT and USDC, which necessitates their issuers to keep a large quantity of support assets on hand. This could have an impact on the pricing of these safe assets if market conditions create an accelerated run.

The report goes on to say that, while cryptocurrency assets pose major dangers to the global economy, legislation is still in the works and has failed to acknowledge these concerns fully. Spain lacks the ability to control cryptocurrencies and has only recently established a set of laws and suggestions regarding advertising campaigns involving these aspects.

According to the document:

“In the absence of its own national crypto asset regulation, the Bank of Spain currently lacks the power to regulate, monitor, or approve, the conduct of crypto asset markets or their players.”

Also Read: Bitso to Offset Carbon Emissions From the Trading Platform’s BTC, ETH, ERC20 Transactions

Spain and other European Union countries are awaiting the approval of the Markets in Crypto Assets legislation framework, which, according to recent sources, will designate supranational bodies to monitor cryptocurrency operations in Europe.

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