A recent warning from a consortium bank regulators may actually shed light on the growing state of cryptocurrency adoption.
On Mar. 13 the Basel Committee, a group of global bank regulators and the standard setter for the prudential regulation of banks, released a statement warning that cryptocurrency could have massive implications for the financial sector,
“The continued growth of crypto asset trading platforms and new financial products related to crypto assets has the potential to raise financial stability concerns and increase risks faced by banks.”
According to the release, the group of regulators warned that cryptocurrency poses a number of risks for existing banking institutions. Among the risks listed in the report, the Basel group finds cryptocurrency to pose a threat to liquidity, credit, market and operational risk, with the potential to increase the use of money laundering and terrorist financing. Basel also worries that cryptocurrency will present an alternative for fraud.
The report comes as a little surprise for most cryptocurrency enthusiasts and supporters. Main stream financial institutions have long been espousing the negatives of cryptocurrency adoption, focusing on the ways digital assets can be used for crime, particularly money laundering.
However, the Basel report also pointed out the problematic nature of the crypto markets, and their frequent highly volatile price swings. While Bitcoin may be experiencing its lowest price volatility in the last four months, the Basel group is correct in pointing out that the crypto markets have been volatile compared to traditional asset markets and currencies.
Nonetheless, the advent of stablecoins and their increased adoption throughout the last year–including Facebook’s stablecoin development for their Whatsapp–provides an alternative cryptocurrency that protects against price volatility. The Basel report failed to address the use of stablecoins, and instead focused on the negative risks of cryptocurrency in disrupting current market conditions.
The consortium urged existing bank infrastructure to begin preparing technical expertise to handle the potential threat of cryptocurrency, saying,
“Banks are expected to implement risk management processes that are consistent with the high degree of risk of crypto-assets. Board and senior management should be provided with timely and relevant information related to the bank’s crypto-asset risk profile”,
The committee also urged banks to disclose their crypto-asset exposure in an attempt to reduce client risk. While 2018 proved to be an abysmal year for coin prices, with most cryptocurrencies experiencing greater than 80 percent in losses and constituting a “crypto winter”, the story of 2019 has been one of adoption.
With cryptocurrency prices still languishing, most developers and industry supporters have turned to generating real world use and finding avenues that are not as severely reliant upon coin valuation. Aforementioned “Facebook Coin” looks to provide a price-stable digital asset for payments to its over 2 billion customer user base.
Yesterday Ripple announced a partnership with Forte to invest in a $100 million fund to incentivize blockchain gaming. While coins like TRON and Enjin have been the industry-leaders thus far in promoting crypto-related gaming, the addition of a powerhouse like Ripple could spur the industry to new heights.