The deputy governor of the Bank of England says a cryptocurrency collapse is “likely” and market regulation is urgently needed

Bank of England deputy governor Jon Cunliffe said on Wednesday that a cryptocurrency market crash was “likely” and regulatory clarity was urgently needed.

“Such a collapse is certainly a likely scenario, given the lack of intrinsic value and resulting price volatility, the likelihood of contagion between cryptocurrencies, cyber and operational security gaps, and of course the power of herding behavior,” he said during a speech at the SIBOS conference.

While the market capitalization of digital assets will grow to more than $2 trillion this year, the nascent industry remains lightly regulated and law enforcement agencies around the world are collectively considering how best to increase oversight.

The International Monetary Fund, in a report released Tuesday, also warned of growing risks in the space, including fraud, excessive speculation and potential “runs” on seemingly more stable assets. Meanwhile, China imposed a near-total ban, banning all cryptocurrency transactions in September.

For his part, Cunliffe compared the digital asset space to the US subprime mortgage market that brought the global economy to the brink of collapse, pointing out that in 2008, the subprime market was valued at around $1.2 trillion.

He also focused on decentralized finance, or DeFi, saying that England’s central bank had begun work on risk management and consumer protection. DeFi is an umbrella term for a variety of applications – lending, lending, trading, saving, derivatives, options, equities – that use public blockchains and crypto assets to disrupt traditional financial sectors.

He still sees positive potential in cryptocurrencies, but only if clear rules are introduced soon.

“Indeed, effectively bringing the cryptocurrency world into the regulatory sphere will help ensure that the potentially very large benefits of this technology in finance can flourish in a sustainable way,” he said. “Urgent action is needed.”

According to a June study by the Financial Conduct Authority, around 2.3 million adults in the UK own cryptocurrencies. Although the percentage of people who perceive cryptocurrency trading as gambling has decreased, it is still more than one-third of respondents. However, an increasing percentage saw digital assets as a complement or alternative to their main investments.

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