If there’s one thing we remember from recent events, it’s the volatility of the cryptocurrency market. After the memorable fall of FTX, even the big figures of the cryptocurrency industry agree on one point: a strict regulatory framework is needed to stabilize the cryptocurrency market. An opinion shared by the Deputy Governor of the Bank of England, Sir Jon Cunliffe.
FTX slump: Cunliffe voices his opinion
FTX, one of the largest cryptocurrency exchanges, filed for bankruptcy on Nov. 11. Adding to its phenomenal fall are significant debts, at a rate of about $3.1 billion. For his part, Sam Bankman-Fried lost his status as a billionaire. Sure, the FTX CEO currently doesn’t skimp on wherewithal to repay his clients and investors. But the task proves difficult due to the reluctance of potential creditors.
To reiterate this volatility in the cryptocurrency market, the deputy governor of the Bank of England says that “cryptocurrencies are in danger of collapsing and its prices could return to zero”. This statement equally well describes the deep crisis facing the cryptocurrency industry.
With particular reference to the FTX case, he makes an important point: the FTT token has no intrinsic value. Therefore, it does not constitute a guarantee for loans and even less for margin payments. Sir Jon Cunliffe even spoke about the fund management problems of Sam Bankman-Fried’s company.
However, he points out that the fall of FTX should not affect the financial system. “Last week’s FTX implosion is currently not big enough or sufficiently interconnected with traditional finance to threaten the stability of the financial system,” she said.
Strict regulation of cryptocurrencies is needed, says Bank of England deputy governor
Presenting at Warwick Business School on 21 November, Sir Jon Cunliffe highlights the importance of regulating the cryptocurrency market. A mission that, everywhere in the world, falls to regulators. “We shouldn’t wait for it to be big and connected to develop the regulatory frameworks necessary to prevent a crypto shock, which could have a much greater destabilizing impact,” he said in his speech. He further adds: “Our aim is to ensure that innovation can happen, but in a framework where risks are adequately managed”.
Note that in the UK, cryptocurrency companies are regulated by the FCA (Financial Conduct Authority). You should also know that the British government is about to pass new laws on the market and on financial services.