Image Source: Outlook India
When the FTX cryptocurrency exchange failed, a top Bank of England official said that the financial system needs better rules to keep it safe.
Sir Jon Cunliffe said that digital currencies aren’t big enough to be a threat yet, but that will soon change.
Last week, FTX went bankrupt because it owed almost $3.1 billion (£2.6 billion) to its biggest creditors.
People are also waiting to get their money back by the thousands.
Sir Jon, the Bank’s vice governor for financial stability, also said that the recent changes in the value of cryptocurrencies were a threat.
The most popular digital currency in the world, Bitcoin, has lost almost 70% of its value in the last year.
He said that the crypto world was not yet “big enough or connected enough to traditional finance to threaten the financial system’s stability.”
But he said it was getting more and more linked to traditional finance.
It comes as the Financial Services and Markets Bill is about to be passed by Parliament. The bill will set rules for stablecoins: digital assets backed by a real asset, and how crypto assets are sold.
In his speech, Sir Jon said that the Financial Conduct Authority, the UK’s financial watchdog, had warned for a few weeks before FTX went bankrupt.
Even though FTX wasn’t permitted to work in the UK, its collapse has sent shockwaves worldwide.
After the company went out of business, its paperwork showed that it could owe more than a million people and businesses money.
Why cryptocurrency needs regulation
Sam Bankman-Fried, the CEO of FTX before it went bankrupt, said that his company was “the most regulated” in the industry.
FTX got many permissions to work in many countries and offers many different crypto services.
In the end, though, these certificates didn’t do anything to protect customers or investors.
Every time there’s a big problem in crypto, there are more calls for regulation, but the kind of regulation matters.
The main thing that worries the government is ensuring crypto companies don’t go bankrupt and don’t steal people’s money.
But, as always, safety and freedom are at odds with cryptocurrency.
Regulating crypto companies to ensure they are safe and responsible. This would bring them one step closer to the traditional financial system, which crypto believers see as a big no-no.
But the FTX chaos could be the point from which there is no going back, no matter what the true believers want.
On Saturday, FTX said it had started looking at its global assets and was getting ready to sell or change some of them.
Last week, John Ray, the new CEO of FTX, criticized how the failed crypto exchange was run. He said he had never “seen such a complete failure of corporate controls.”
Sam Bankman-Fried started the company, but Mr. Ray took his place. He said that there needed to be more trustworthy information about money.
Mr. Bankman-Fried was well-known in the world of cryptography. The 30-year-old became a billionaire in 2021.
His digital currency exchange, FTX, grew to become the second largest in the world. Users traded between $10 billion to $15 billion every day.
It spent a lot of money on ads during the Super Bowl and bought the naming rights to the building where the Miami Heat NBA team played last year.
Read Also: Why Crypto exchange FTX failed
Even though the fall of FTX caused a lot of trouble in the crypto world. Sir Jon said that the Bank of England was still thinking about whether the UK needs its digital currency.
He said that the decreasing role of cash and, the increasing digitalization motivated work on a digital pound.
Sir Jon said that the Bank planned to put out a report by the end of the year with possible next steps.