Bank Of Canada Warns Crypto Needs to Be Regulated Before It Gets Too Big

June 12, 2022 1:20 pm

Bank of Canada is now voicing its concerns and says that crypto needs to be regulated before it gets too big to be ignored.

These comments come during a time when the overall market is in a slump which could be attributed to overall economic uncertainties as well as its correlation to traditional financial markets which have also been largely bearish.

The bank has revealed that the sense of urgency is now greater than ever before as more and more people are now investing in this new asset class.

Additionally, the firm is saying that a spillover in the crypto markets may trigger unknown effects on the broader markets.

With that being said, there is no specific details on how exactly regulation will “protect” investors or whether or not that is the true agenda in the first place.

CryptoPotato.com reports:

She was worried that as the industry keeps growing rapidly, attracting new investors who may not understand the risk involved, a violent price drop may eventually lead to a spillover effect onto the broader financial system.

“This is an area that is still small, but it’s growing really rapidly. We don’t want to wait until it gets a lot larger before we bring regulatory controls in place.”

The Deputy Governor viewed the sector as a “largely unregulated area” where investors tried to earn “quick gains” without much knowledge as a whole. According to a recent survey conducted by the bank, 13% of Canadians owned Bitcoin in 2021, up from 5% as recorded the year before.

Despite the urgency of introducing relevant regulations, she acknowledged difficulties in categorizing and overseeing the asset class within the existing regulatory framework.

A lot of central banks around the world also seem to have a very cautionary approach to the new industry and the role that it could take.

Some are claiming that it is not an effective hedge for inflation which is an issue that the majority of countries around the world are experiencing.

Others also say that it is not a stable source of value due to its volatility which makes it unsuitable to be used.

With that being said, the innovations within the space are still something that it cannot ignore as recent surveys have shown that the majority of central banks are working on CBDCs.

Yahoo concludes:

Like any asset that’s jumping around in price, people see an opportunity for quick gains,” said Rogers. “Our concern is they may not understand the risks. They may not even understand that it’s not a regulated area.”

Indeed, cryptocurrency prices plunged in recent months as appetites for high-risk assets soured, exposing some investors to significant financial losses.

The industry needs to be regulated, said Rogers, but the challenge is sorting out just how that will be done.

“These are somewhat like banking assets, somewhat like capital markets,” she said. “One of the challenges is to figure out how do they fit in the current regime, and if they don’t fit, how do we adjust the regime so that they will fit.”

Regulation may be necessary, but regulation that restricts the free will of investors and creates an unfair playing field for crypto firms will likely stifle innovation and progress.

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