Bank of Spain Report Warns About Cryptocurrency Usage and Its Effect on Financial Stability

The Bank of Spain has issued a new report that touches on the subject of the popularity of cryptocurrency usage and the possible effects it might have on the financial stability of the nation. In the document, the bank explains that these assets — which ostensibly don’t have any kind of support behind them — can introduce systemic risks via their adoption by traditional institutions and the lack of regulation over them.

Crypto Assets Could Cause Systemic Risks According to the Bank of Spain

The Bank of Spain has issued a new report where it warns about the growth of the cryptocurrency economy and its possible effects on the traditional economic system. According to the report, while the cryptocurrency market is still considered limited, its exponential growth and the fact that most of the value of the market comes from cryptocurrency assets without support, could pose risks for the global economy.

This “systemic risk” is explained by the growing links between crypto and the traditional economy. On this, the Bank of Spain identifies two possible vectors. The first one has to do with the elevated volatility of these assets and their correlation with traditional markets. On this, the document informs:

The high volatility of crypto assets may contribute to these dynamics, with corrections in these assets favoring a more general correction in financial asset prices.

The second risk vector has to do with the elevated market cap of traditional stablecoins like USDT and USDC, which forces their issuers to maintain a high number of support assets. This might affect the prices of these “safe” assets in the case of an accelerated run caused by market conditions.

Regulation Still Not There

The report continues to explain that, while these cryptocurrency assets pose significant risks for the global economy, regulation is still being established and has failed to address these concerns comprehensively. Spain does not have the ability to regulate cryptocurrencies and has just recently issued a set of rules and recommendations when it comes to advertising campaigns related to these elements.

The document clarifies that:

In this context of lack of its own national regulation on crypto assets, the Bank of Spain does not currently have the capacity to regulate, authorize or supervise the operation of crypto asset markets or their participants.

Spain and others in the E.U. are waiting for the approval of MiCA, the Markets in Crypto Assets law framework, which according to recent reports, will designate supranational entities to oversee cryptocurrency operations in Europe.