Forex in this article
The consequences of the Terra downturn remain largely limited to the crypto space
Interdependence between the traditional financial industry and the crypto sector is increasing
Branson: In the long run, huge cryptocurrencies could hurt the stability of the financial market
At this year’s tech conference for the Federal Financial Supervisory Authority (BaFin), the topic of FinTech is on the agenda. In this context, the market experts also comment on the current situation in the crypto market. They point to growing risks from Bitcoin, Ethereum & Co.
Terra crash sent the crypto world into shock
The collapse of stablecoin Terra (UST) has sent widespread shock waves through the crypto sector over the last few days. Within hours, UST, which was actually considered stable, lost a lot of value. “Stablecoin”, which actually aims at parity with the US dollar, is currently only 0.0674 US dollars (as of May 23, 2022). The Terra coin LUNA – a linked cryptocurrency that was supposed to guarantee the stability of the algorithmic stablecoin UST – has now even become practically worthless. In all, nearly $ 50 billion was burned in this double-edged sword. Many media outlets described the Terra crash as the largest cryptocurrency crash in history to date, and the entire crypto market was affected. However, according to BaFin chief Mark Branson, this debacle could not remain an isolated case.
BaFin chief: Crypto-turbulence poses growing risks to financial market stability
The recent decline in cryptocurrencies is “exemplary of the opportunities and risks of the digital financial world,” the “Börsenzeitung” quoted BaFin chief at the start of the conference. Britain’s Mark Branson, who chaired Swiss financial market supervision between 2014 and 2021, took over as BaFin chairman from Felix Hufeld in August 2021.
In terms of the integration of cryptocurrencies into the general financial market, the BaFin president distinguishes between three categories, as quoted by “Handelsblatt” Branson. First, there is the question of whether the impact is “relevant to stability”. “From today” this is “rather not” the case. Secondly, it is important to assess what the crypto industry means for the development of economic crime – there are “too many gaps” in this regard these days. Third, investor and consumer protection are crucial. There is increased cause for concern here if cryptocurrencies “often not selflessly” are advertised on social media. It has kept the authorities busy in recent days, which has been marked by the Terra crash.
The interconnection of the banking system and the crypto sector is increasing
So far, however, fears of the impact of the recent crypto-turmoil on the traditional financial industry have not been confirmed. Branson said in Berlin about a potential mix of the previously separated areas: “We do not see that at the moment, but it could also go in this direction in the future if the links with the traditional financial system become even closer,” Branson said. the financial market supervisor. “Today, these systems are still quite clearly separated from each other, but that may change.” In fact, more and more well-established large banks are getting involved in the crypto area. Commerzbank recently applied to BaFin for a cryptocurrency. In addition, the American investment bank Goldman Sachs recently issued the first loans secured by Bitcoin.
BaFin’s “neutral” stance on cryptocurrencies
BaFin, Branson assures, is “absolutely open-minded, but at the same time neutral” to new technologies in the financial sector. One wants to weigh both opportunities and risks in further decisions. The head of the agency stresses that “the technology itself is promising.” But it’s not enough: “Hopefully we go from promising to efficient and scalable,” he adds. “In my opinion we are not there yet,” the Handelsblatt quoted the British. BaFin therefore occupies a cautious ambush position and closely follows the further development of the crypto market. The dramatic Terra sale, which meant a total loss for many thousands of investors, may not have been good publicity for cyber currencies from BaFin’s perspective. Therefore, Branson also highlights a frequently mentioned insight: “Cryptocurrencies carry significant risks.”
According to Carolina Melches, an expert in the digitalization of the financial markets of the citizens’ movement “Finanzwende”, BaFin’s opportunities to stem the negative growth in speculation around Bitcoin & Co. severely limited. Like many other financial market regulators around the world, BaFin “struggles to keep up with the large number of fintechs, start-ups and digital assets in terms of regulation,” quotes “Handelsblatt” Melches. After all: Since 2020, companies wishing to store, manage and secure third-party cryptocurrencies have had to apply for a cryptocurrency depository at BaFin.
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