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Speech by Jon Cunliffe: ‘Is crypto a financial stability risk’?

Bank of England | Jon Cunliffe, Deputy Governor, Financial Stability | Oct 13, 2021

Sir Jon Cunliffe - Speech by Jon Cunliffe: ‘Is crypto a financial stability risk'?

Sir Jon Cunliffe, Deputy Governor, Financial Stability, BoE

Jon Cunliffe's Speech Overview delivered at Sibos:  Jon Cunliffe looks at the impact of ‘crypto’ on the stability of the UK’s financial system.  He says unbacked crypto-assets (eg Bitcoin) and backed crypto-assets for payments (stablecoins) have begun to connect to the financial system. And he talks about how regulators are responding to their rapid growth.

I want to talk today about whether the world of ‘crypto finance’ poses risks to financial stability.

Cryptoassets have grown by roughly 200% in 2021, from just under $800 billion to $2.3 trillion today. They have grown from just $16 billion 5 years ago. $2.3 trillion of course needs to be seen in the context of the $250 trillion global financial system. But as the financial crisis showed us, you don’t have to account for a large proportion of the financial sector to trigger financial stability problems – sub-prime was valued at around $1.2 trillion in 2008.


When something in the financial system is growing very fast, and growing in largely unregulated space, financial stability authorities have to sit up and take notice. They have to think very carefully about what could happen and whether they, or other regulatory authorities, need to act.

At the same time, they need to be careful not to over-react – particularly when faced with the unfamiliar. We should not classify new approaches as ‘dangerous’ simply because they are different. Innovation, technology and new players can tackle longstanding frictions and inefficiencies and reduce barriers to entry. Throughout history, they have been key to driving improvement and to increasing resilience in financial services.

I will give you my conclusions at the outset. Crypto technologies offer a prospect of radical improvements in financial services. However, while the financial stability risks are still limited, their current applications are now a financial stability concern for a number of reasons.

Cryptoassets are growing fast and there is rapid development of new applications for the technology. The bulk of these assets have no intrinsic value and are vulnerable to major price corrections. The crypto world is beginning to connect to the traditional financial system and we are seeing the emergence of leveraged players. And, crucially, this is happening in largely unregulated space.

Unbacked cryptoassets

Unbacked cryptoassets make up nearly 95% of the $2.3 trillion.

They are essentially non-replicable strings of computer code that can be owned and transferred without intermediaries. Bitcoin, of course, is the most prominent example, but there are now nearly eight thousand unbacked cryptoassets in existence. These have no intrinsic value – that is to say there are no assets or commodities behind them: the value of the cryptoasset is determined solely by the price a buyer is prepared to pay at any given moment.  As a result, their value is highly volatile.

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And while retail investment predominates in this market, there are signs of growing institutional investor interest, with these investors now thinking about whether to have crypto in their portfolio. More complex investment strategies are beginning to emerge, including crypto futures and other derivatives.

At the same time, core wholesale finance and financial market infrastructure firms are putting their toes in the water. Several global banks are offering, or are planning to offer, digital asset custody services. Some international banks have started to, or are looking at, trading cryptoasset futures and non-deliverable forwards; and offering wealth management clients cryptoasset investments, following client demand. Others have developed exchange platforms facilitating matched trades, or offer customers access to other crypto exchanges through their apps. Leading payment firms are also exploring ways of allowing people and businesses to use certain stablecoins for payments and for the settlement of transactions within their networks.

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