Cryptocurrencies have added to the financial risks in developing economies, according to a report by the Bank for International Settlements (BIS).
BIS, an international financial organisation made up of 63 member central banks, has explored the possibility of crypto growing to the same level of traditional finance options, and looked into the risks that could follow.
“Cryptoassets hold out the illusory appeal of being a simple and quick solution for financial challenges,” the report stated.
However, crypto has “so far not reduced but rather amplified the financial risks in less developed economies,” the report added.
The risks can be mitigated if specific authorities around the globe can effectively communicate on what data they need to monitor the crypto markets effectively.
The study notes that in order to do this authorities would have to encroach on the anonymity which makes cryptocurrency so unique and appealing to those that use it.
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The BIS claimed that adopting a more risk-focused approach to the regulation of crypto will become “even more pressing if crypto assets are more widely adopted by retail investors and if links with the traditional financial system increase”.
Research analyst GlobalData echoed this point, stating that “the transformative possibilities of cryptocurrencies come with a host of challenges that must be addressed.”
“High volatility, security concerns, and regulatory uncertainty, especially in the US with the enforcement actions taken by the Securities and Exchange Commission, are just some of the hurdles that cryptocurrencies face in their journey toward mainstream acceptance,” the research firm said.