Is Crypto a Threat to Global Financial Stability

Source: investing.com

Introduction

The collapse of the multi-billion crypto exchange – FTX which saw individuals, companies, and other large establishments lose large sums of their capitals up to the tune of $200 Billion in investments with the exchange had drawn the attention of the Financial Stability Board (FSB) who now consider crypto trading when unregulated as capable of destabilizing the global financial stability.

The board members believe that crypto trading given its interconnectedness with the global financial system could pose a serious threat to the global economy due to its structural vulnerabilities and uncensored projects. The body proceeded to publish a proposed framework for crypto regulation which has been thrown open for public contributions till December 15, 2022.

Does crypto pose a threat to Global Financial Stability? Is it necessary to regulate Cryptocurrency after seeing different crypto projects crash in 2022? Is it better to trade crypto using the regulated Cryptocurrency CFD brokers? This work has examined these pressing questions about cryptocurrency trading today.

What is Cryptocurrency?

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Often, when we mention cryptocurrency, the first thing that comes to mind is Bitcoin. This is because Bitcoin has been the first Cryptocurrency ever launched and is today the most traded cryptocurrency in the market with the largest capital investment.

However, the term cryptocurrency is not limited to Bitcoin alone, as we have several other digital assets existing alongside Bitcoin such as: Ethereum, BNB, Ripple, Uniswap, Litecoin, Tron, etc. Thus, the term Cryptocurrency therefore refers to valuable digital assets with monetary value built on a Blockchain as a decentralized means of payment.

Is Crypto a threat to Global Financial Stability?

The history of cryptocurrency is filled with so many cases of crashed crypto projects and exchanges which have resulted in the loss of investors’ funds. Thus, the recent crash of the FTX exchange renowned as the second largest crypto exchange in the world which saw investors lose large amount of their capital invested with the exchange has raised large concerns amongst the regulatory authorities that the crypto industry when left unregulated could pose a serious threat to Global Financial Stability.

This has moved the Financial Stability Board (FSB) into developing a regulatory framework for cryptocurrency trading expected to take shape in December 2022 after the final review. The EU lawmakers had been alarmed too and they proceeded to vote almost unanimously in support of the MiCA bill to be passed during the next Parliament which stipulates the guidelines for crypto regulations aimed at protecting the investor’s funds.  Is it necessary to regulate the crypto industry at this point?

Many crypto traders seem to be kicking against this move as going against the purpose of cryptocurrency which has been designed to be a decentralized means of payment. While this is understandable, the amount of capital invested into crypto today has made it necessary for the industry to be more sanitized; at least to protect investors’ funds, otherwise, more individuals and companies will keep losing their capitals invested into various crypto projects over time which has the effects of destabilizing the global financial stability as more funds keeping going into the crypto industry.

Advantages of trading crypto

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  • Often serves an investment package.
  • Offers a decentralized means of payment.
  • Payment via cryptocurrency is fast and cheap.
  • Often used as a tool to hedge against inflations.

Disadvantages of trading crypto

  • It is one of the riskiest investment packages.
  • The industry is still not well regulated.
  • Some coins have no maximum supply and are subject to future inflation.
  • Some weak projects could crash over time leading to a loss of investors’ funds.