US Federal Reservehas warned banks across the country of the instability in the cryptocurrency market and the liquidity risks associated with mass selling events.
The warning was issued in response to a joint statement by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Currency Controller. Noting the risks associated with cryptoassets, the Fed recommended some effective practices for banks to manage such risks. It was noteworthy that the announcement came at a time when the country’s regulators continue to tighten the regulatory framework against crypto-native businesses.
U.S. Securities and Exchange Commission (SEC) recently proposed changes to the rules governing the retention of assets by companies in various industries. This will cause crypto companies such as exchanges to comply with stricter rules and provide more audit evidence from independent auditors.
Crypto Statement From Fed
The statement addressed two types of risks associated with cryptocurrencies for banking institutions. The first of these, crypto- is the risk associated with deposits deposited by an asset-related entity, i.e. a crypto exchange, on behalf of its clients. The second risk is linked to the deposits that make up the stablecoin-related reserves. The joint statement recommended some ‘effective risk management practices’ to actively monitor liquidity risks. The central bank has warned banks about the possibility that crypto-related deposits are susceptible to unforeseen market fluctuations.
The stability of deposits can be affected by, for example, periods of stress, market volatility and related vulnerabilities in the crypto-asset sector; these vulnerabilities may or may not be specific to the cryptoasset-related entity.
You can follow the current price action here.