A United States banking trade regulator warned banks of the “rising dangers” of cryptocurrencies saying the sector ought to take a “cautious strategy” and search permission in some circumstances when partaking with crypto or crypto companies.
Citing “dislocations” within the crypto market over 2022, the Workplace of the Comptroller of the Foreign money (OCC) highlighted what it stated had been “a number of key dangers” of crypto in its Dec. 8 Semiannual Threat Perspective for Fall 2022 report.
Its three primary considerations are that “stablecoins could also be unstable,” the crypto trade lacks mature danger administration practices and has a excessive danger of contagion because of the “excessive diploma of interconnectedness.”
Test it out! The @USOCC reported the important thing points going through the federal banking system in its Semiannual Threat Perspective for Fall 2022. Learn extra at https://t.co/CcfoiQM8xe pic.twitter.com/0WnAt5psXU
— OCC (@USOCC) December 8, 2022
The area’s lack of “constant or complete regulation” and the volatility of crypto, together with the elevated vary of companies providing “bank-like services” utilizing crypto and tokenized belongings, had been additionally cited as considerations, which the OCC believes raises questions concerning monetary stability.
The depeg and collapse of the TerraUSD Traditional (USTC) algorithmic stablecoin in Could was given for instance of stablecoins’ “run danger,” and the way asset-backed stablecoins additionally noticed minor depeg occasions in consequence.
It highlighted stablecoin backings have “incrementally advanced” since, however believes most “stay prone to run danger.”
Discussing danger administration, the OCC stated practices at crypto companies had been maturing however are “not but sturdy,” with companies showing “unprepared for the stresses and surprises” over the previous yr that noticed losses for thousands and thousands of traders, it added:
“Hacks and outages are frequent, and fraud and scams stay excessive all through the trade. In some circumstances, possession rights, custody preparations, and monetary representations have created a excessive diploma of confusion.”
The crypto market over 2022 additionally revealed the trade’s “interconnectedness […] by a wide range of opaque lending and investing preparations,” in response to the OCC.
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It remarked crypto members “could also be partaking in extremely leveraged buying and selling” which resulted within the famous contagion danger.
In its recommendation to banks, the OCC stated establishments contemplating partaking with crypto or crypto corporations “ought to take a cautious and incremental strategy.”
The OCC suggested nationwide banks that crypto-related plans ought to be mentioned “with their supervisory workplace” earlier than they have interaction in any actions, as some doubtlessly require permission.
Crypto corporations have moved to enhance transparency within the wake of the chapter of FTX, with many exchanges introducing proof-of-reserves so customers can confirm crypto backings, together with some conducting public third-party audits.