Systemic risk and digital assets

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Despite the U.S. Federal Reserve declaring that FTX doesn’t threaten the stability of the broader financial sector, several recent regulatory and legislative initiatives have focused on attempting to rain in the ‘wild west’ of the digital asset space and, in the process, mitigate the potential for a future FTX style crisis infecting ‘traditional markets.’ However, both the level of the threat posed by the industry and the best way to deal with it are matters of differing interpretation. The Federal Reserve in the U.S. and the European Securities and Markets Authority (ESMA) both consider digital currency markets do not pose a systemic risk to the broader global economy, while the Bank of England, the U.S. Financial Stability Oversight Council (FSOC), and the Reserve Bank of India (RBI) broadly agree that digital assets don’t currently pose a risk, they all voiced concern about the industry’s potential for risk. In order to unpick what systemic risk the digital asset industry does or does not pose, it’s necessary to examine the concept itself and how it may be assessed, as well as what regulatory bodies around the world are saying on the topic.

Published on CoinGeek