Global financial watchdog Financial Stability Board (FSB) will propose rules and regulations for cryptocurrencies in October 2022, following the recent market crash that brought attention to the need to regulate the speculative and volatile sector. The FSB will provide recommendations to the G20 finance ministers and central bank governors on the regulatory and supervisory approaches to stablecoins and other crypto assets.
Recent Turmoil in Crypto Market
The largest cryptocurrency, bitcoin, lost around 70% of its value after soaring a record high of $69,000 in November 2021, and as of July 1, 2022, it was trading at $19,269. This crash left many investors with huge losses. The recent instability in the crypto assets market brings to the fore the need for regulators and other international standard-setting bodies to strengthen their efforts to address potential dangers to financial stability presented by cryptocurrency.
The Collapse of Stablecoins
Stablecoins were introduced as the safest cryptocurrencies as they were meant to protect traders from the volatility of the cryptocurrency market. However, the collapse of the TerraUSD (UST) stablecoin serves as a warning sign of the unstable nature of algorithmic stablecoins. After the debacle, the markets were shaken by withdrawals and transfers from major cryptocurrency companies, Celsius Network and Voyager Digital. If stablecoins are to be adopted as a widely accepted form of payment, they should be subject to stringent regulations and oversight from appropriate authorities.
Need for Regulations
Cryptocurrency, including stablecoins, is rapidly evolving. The recent crash in cryptocurrency markets brings to light their inherent volatility, structural vulnerabilities, and growing interconnection with the conventional financial system. An efficient regulatory framework will ensure that crypto asset activities that pose risks similar to those of traditional financial activities are subject to the same regulatory outcomes while taking into account the novel features of crypto assets and using the potential benefits of the technology behind them. Effective supervision and regulation of cryptocurrency markets and assets are absolutely essential, both nationally and internationally, in proportion to the risks they entail.
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