There is also concern that uncoordinated regulatory actions may facilitate potentially destabilizing capital flows. The IMF estimates cryptos’ market capitalization at $2.5 trillion. This may be an indication of the significant economic value of the underlying technological innovations such as the blockchain, although it might also reflect froth in an environment of stretched valuations.
Cryptos’ potential to transform the traditional financial system means the associated challenges are attracting considerable regulatory attention. The focus is twofold: cryptos’ possible impact on financial stability and the need to protect vulnerable customers.
The principal challenge is the need for an internationally coherent policy approach, including definitions and jurisdictional perimeters, and in terms of exchanges, prevention of market manipulation and systemic risks. Lending and payment risks, banking, payments and anti-money laundering (AML) risks, tax policy and tax evasion risks, securities fraud and scams, together with cyber security, hacking and privacy risk will all need to be addressed.