In a new report to the G20, the Financial Stability Board (FSB) has concluded that “cryptoassets do not pose a material risk to global financial stability at this time”.
While this is a welcome boost for the crypto industry, the FSB does make clear that these assets should be vigilantly monitored by authorities going forward.
As such, the FSB has requested that the Standing Committee on Assessment of Vulnerabilities (SCAV) and the Committee on Payments and Market Infrastructures (CPMI) work jointly to develop a framework for monitoring the financial stability risks related to cryptoassets with a focus on identifying potential metrics that can be used to measure these risks.
The FSB report discusses the primary risks within cryptoassets and the potential transmission channels to financial stability risks using a number of different metrics.
“In general, monitoring the size and rate of growth of cryptoasset markets is critical to understanding the potential size of wealth effects, should a decline in valuations occur. These metrics are currently available,” says the FSB in the report.
It continues: “The use of leverage, and financial institution exposures to cryptoasset markets are important metrics of transmission of cryptoasset risks to the broader financial system. Some derivatives metrics are available, and metrics on exposures would become part of the monitoring framework to the extent that they become available.”
When it comes to analysing the initial coin offerings (ICO), the FSB notes that the rapid development of this market, the lack of transparency around the identity and location of token issuers, data gaps and the fragmented nature of the crypto markets in general make determining effective metrics for measuring the risks to the financial system more challenging.
“The cryptoasset market is rapidly evolving, as are public data sources. The treatment and characterisation of cryptoassets may vary across jurisdictions or may not yet have been clarified. Given that the proposed monitoring metrics are mainly based on public data, it should be stressed that the quality of the underlying data can vary, and might not always be satisfactory. Furthermore, market-related figures, such as metrics on prices, trading volumes, and volatility may be manipulated by generally prohibited practices such as “wash trading”, “spoofing”, and “pump and dump”, the existence of which cannot be ruled out at this stage. Moreover, the proposed metrics may not fit all types of cryptoassets equally. Caution should therefore be applied when considering data metrics and how to gather, measure and analyse the data proposed by this framework,” says the FSB in its report.
Despite these limitations, the FSB expresses confidence that the metrics used in its report support its declaration that cryptoassets are not currently a significant risk to the stability of the mainstream financial markets.
The price of bitcoin climbed above $6,700 subsequent to this news, having spent most of the last month below this figure.
Commenting on the FSB report, NIgel Green, CEO of the deVere Group, an independent financial advisor with $12 billion under advisement, says: “Cryptocurrencies are the future of money and they are already undeniably part of mainstream finance. This is underscored today by the report by the Financial Stability Board, the international watchdog, which finds that cryptocurrencies do not pose a material risk to the global financial system – which some traditionalists with vested interests have hitherto argued in order to knock digital currencies.”
He adds: “This report comes after the FSB, which is headed by Bank of England Governor Mark Carney, previously wrote a letter to the G20 finance ministers and central bank governors earlier this year stating that bitcoin does not pose a ‘systemic risk’ to the global financial system. As such, the latest report can be seen as further recommendation of cryptocurrencies from the influential FSB – which has members from all the G20 major economies.”