Those who trade financial products in bonds, equity or fx, all know the dangers of illiquid markets – especially when trading large positions – and the the damage that excessive price volatility can cause. In a recent letting sent out to financial institutions, the Bank of England warned banks about the risks of lack of liquidity. Also, the Deputy Governor Sam Woods suggested that banks take appropriate measures to protect themselves against fraud and manipulation form those who are laundering.
Clearly the Bank of England is working in the crypto-world already as it partnered up with Ripple to test an interledger system and is revamping its settlement system to accommodate distributive ledge technology. Both the Bank of International Settlements (BIS) and the Bank of England are advising banks not to get ahead of themselves by classifying cryptos as a form of currency.
Most of these institutions agree that the underlying distributive ledger technology has obvious benefits, they have made it crystal clear that the excessive price action and volatility are a concern. And they point out that terrorists and organized crime organizations are involved in these new coins – using fraud, money-laundering and heists. There are many bad actors in this ecosystem, another reason for the central bank to study the matter closely.
We see more clarity as regulations in the digital world are stepped up. Long-term this is of course positive, as the bad actors are squeezed out.