Are cryptoassets systemically relevant? (March 2022)

Foreword: METI Advisory wrote this report for SEBA Bank AG. The issue of whether cryptoassets pose a risk to the financial system has been firstly raised after their all-time high capitalisation level reached in January 2018. It has been raised again more recently, following the all-time highs scored in April and November 2021. Systemic risk is not about investor protection and anti-money laundering aspects. It is about the stability of the broad financial system, the solidity of its infrastructure, and the effectiveness of monetary policy. Governmental and regulatory bodies such as the G20, the Financial Stability Board (FSB), the International Monetary Fund (IMF), the European Central Bank, the Bank of England, and the US Federal Reserve have concluded that cryptoassets do not pose a systemic risk. Over time, however, the growing size of the crypto market, enhanced confidence and adoption by investors, and increased interconnection with traditional financial markets have made it more challenging than before to assess the point where financial stability risks could rapidly escalate. Moreover, several emerging economies are more exposed to this risk because the relevance of cryptoassets in their economies is higher than in mature economies. Following the latest analysis by the FSB (February 2022), the authorities intend to improve data collection to better monitor the risk and have called for improved cross-border cooperation. As cryptoassets become more integrated with traditional markets and more sizeable in terms of market capitalisation, it is reasonable to expect enhanced supervision of cryptoasset exposures by the regulated sector, a finalisation of the Basel Committee on Banking Supervision’s prudential treatment of banks’ cryptoasset exposure, and the acceleration of the work to broaden the regulatory perimeter to cryptomarket actors. Those actors that have been regulated by design benefit from a first-mover advantage.