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

The Bank of Spain released a new report that touches on the popularity of the use of cryptocurrencies and the possible implications for the country’s financial stability. In the document, the bank explains that these assets – which supposedly have no backing – can pose systemic risks due to their acceptance by traditional institutions and lack of regulation.

Crypto-assets could cause systemic risks according to the Bank of Spain

Bank of Spain releases new report in which it warns of the rise of the cryptocurrency economy and its possible impact on the traditional economic system. According to the report, while the cryptocurrency market is still considered limited, its exponential growth and the fact that much of the market’s value comes from cryptocurrency assets without support could pose risks to the global economy.

This “systemic risk” is explained by the growing links between cryptocurrencies and the traditional economy. In this regard, the Bank of Spain identifies two possible vectors. The first is related to the increased volatility of these assets and their correlation with traditional markets. This is reported in the document:

The high volatility of crypto-assets could contribute to these dynamics, with corrections in these assets contributing to a more general correction in financial asset prices.

The second risk vector relates to the increased market value of traditional stackablecoins, such as USDT and USDC, forcing their issuers to maintain a large number of ancillary assets. This could affect the prices of these “safe” assets in the event of an accelerated runaway caused by market conditions.

Regulation is still lacking

The report goes on to explain that while these cryptocurrency assets pose significant risks to the global economy, regulation is still in its infancy and has failed to comprehensively address these issues. Spain does not have the ability to regulate cryptocurrencies and has only recently issued a set of rules and guidelines when it comes to advertising campaigns related to these elements.

The document explains that:

In the absence of its own national regulation of crypto-assets, the Bank of Spain currently has no ability to regulate, authorize or supervise crypto-asset markets or their participants.

Spain and other EU countries are awaiting approval of MiCA, a framework law on crypto-asset markets, which, according to recent reports, will designate supranational organizations to oversee cryptocurrency operations in Europe.

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