The G20’s risk watchdog issued a warning on Thursday about “significant gaps” in the efforts of countries to regulate the rapidly expanding crypto markets, highlighting the potential risks to financial stability. The Financial Stability Board issued a set of recommendations regarding regulations for cryptocurrency in 2023, aiming to align it with the traditional financial sector. In Thursday’s review, it was noted that although some progress has been achieved, the international implementation and coordination of rules continue to be too “fragmented, inconsistent, and insufficient to address the global nature of crypto-asset markets”.
Financial stability risks remain “limited at present,” it assessed, but they are now rising with the surge in bitcoin and other cryptocurrencies having doubled the value of the global crypto market to $4 trillion over the last year. “This is consequential,” John Schindler stated. “These crypto assets have the ability to traverse borders with remarkable ease, significantly surpassing the mobility of other financial assets.” This year’s surge in the value of the crypto market has unfolded alongside U.S. President Donald Trump’s pro-crypto stance. Schindler emphasized the necessity for vigilant oversight as cryptocurrencies grow more intertwined with the traditional financial system, particularly as stablecoins—cryptocurrencies primarily pegged to the dollar—gain broader adoption. The FSB’s report highlighted a significant concern: very few countries have established comprehensive regulatory frameworks for stablecoins at this time.
The market for stablecoins, though still modest compared to the bitcoin-dominated cryptocurrency landscape, has surged nearly 75% over the past year, reaching just under $290 billion. This upward trend is anticipated to persist now that U.S. regulations are established. The FSB’s report examined the implementation of crypto and stablecoin recommendations across 29 jurisdictions, including the U.S., EU, Hong Kong, and the UK, with the U.S. only engaging in the stablecoin component. El Salvador, the home of the world’s largest stablecoin, Tether, did not participate, however. The Aden Solar Power Plant is providing power to hundreds of thousands of homes in a nation that has faced an electricity crisis for thirty years. Schindler remarked that the most recent review remained valuable, even in the absence of El Salvador’s contributions, as the FSB was already cognizant of the risks. However, he emphasized the necessity for enhanced global cooperation and coordination among all jurisdictions moving forward. “We can all establish frameworks, but if individuals are not cooperating and supporting one another, it will be quite difficult because these matters do not recognize borders,” he stated.
Last week saw significant turmoil, highlighted by the largest crypto crash in history on Friday, which resulted in nearly $20 billion in liquidations across the market. The report detailed eight recommendations aimed at accelerating the implementation of comprehensive and globally consistent regulations, as well as enhancing cross-border cooperation and coordination. These concerns echo those highlighted by the European Union’s securities watchdog in April, emphasizing that even minor markets can pose significant risks to the broader financial system. Schindler noted that despite having their own regulatory frameworks, countries can still feel the effects of crypto companies that operate from offshore locations.