The Increasing Risks of Cryptoassets
Since the dawn of cryptoassets, multiple technological advancements have been made in the area including improved transaction costs and speed, increased privacy, robust security, and inflation hedging. More recently, the blockchain technology which underpins many of the popular cryptocurrencies we see on the market today, were used to verify the Covid vaccination status of hospital patients.
Despite many of the benefits, the decentralised nature of crypto poses its own fair share of risks including increased financial crime. Critics argue trading in cryptoassets is akin to gambling. The booming popularity in cryptoassets can be drawn from the meteoric rise in the father of cryptoassets, Bitcon, where some trades are now placed based on pure speculation by inexperienced investors in the hope of achieving the same ‘rags to riches’ gains. Moreover, mobile apps are propping up allowing everyday individuals to dive into the highly volatile world of crypto trading.
These risks are increasingly drawing the attention of regulators.
In their recent publications, the PRA and FCA are keen to remind firms on their obligations and best practices when exposed to cryptoassets. Tighter monitoring measures are needed to ensure potential risks including #creditrisk are being captured.
We will continue to monitor this intriguing space as new developments break.
PRA Letter from Sam Woods