(Kitco News) – The World Economic Forum (WEF) has become the latest global organization to comment on the struggles of the crypto industry in 2022, likening the steep downturn in the market to an “ice age” rather than the popular “crypto winter” term used by proponents.
This has led to a broad loss of confidence, economic value, and the collapse of numerous firms and projects, the WEF noted, which has possibly brought an end to the era of crypto speculation and will give way to a “Cambrian explosion for responsible, always-on internet finance.”
The international non-governmental and lobbying organization suggested that 2023 could mark a turning point for the nascent asset class and lead to the entrance of larger players who will bring a greater level of stability to the ecosystem.
“Just as it took the dot-com bubble bursting in the early 2000s to hand over the future of the internet to more durable companies, business models and use cases, perhaps 2022 marks a handover of crypto technology and blockchain infrastructure to steadier hands,” the WEF said.
Despite the setbacks of 2022, the exploration of integrating cryptography and blockchain with the financial sector continues unabated while the technology remains generalizable to all industries and coordinating activities.
This is evidenced by the about-face policy decisions by JPMorgan, the largest bank in the U.S., which has gone from forbidding its traders from purchasing Bitcoin to launching its own JPMorgan Coin and providing financial services to some of the largest cryptocurrency exchanges.
“Arguably, just as boards and executive teams reluctantly owned their cybersecurity and digital transformation mandates, the embrace of crypto technology is equally inevitable, even if the term feels like a bad word,” the WEF said. “For all its faults, this technology remains a protagonist in the global financial world.”
The WEF highlighted that history is full of examples of good or neutral technologies that were coopted by bad actors and the human follies of greed and criminality, “all of which are amplified in emerging, lightly regulated sectors and accelerated by technology.”
“The more enduring approach with all breakthrough technologies is to net out their harmful effects by placing technologies (like all tools) in the hands of responsible actors and encouraging their responsible use,” the WEF said.
Countries that enable responsible competition are destined to shape the future of crypto, the WEF concluded, adding that “cryptography and blockchains will continue to be integral parts of the modern economic toolkit, despite the great harm these tools may have caused when wielded by the wrong people.”
Regulators issues a warning
Meanwhile, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) released a joint statement on Tuesday laying out the risks that crypto poses to the banking industry.
Some of the risks outlined include the risk of fraud and scams among crypto-asset sector participants, legal uncertainties related to custody practices, redemptions, and ownership rights; the significant volatility in the crypto-asset markets; and the susceptibility of stablecoins to experiencing a bank run.
“It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system,” the statement said. “Given the significant risks highlighted by recent failures of several large crypto-asset companies, the agencies continue to take a careful and cautious approach related to current or proposed crypto-asset-related activities and exposures at each banking organization.”
Overall, the agencies indicated that holding crypto assets is “highly likely to be inconsistent with safe and sound banking practices,” and highlighted concerns related to business models “that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector.”
Despite the outlined risks, the agencies said that banking organizations are not prohibited or discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.
“Banking organizations should ensure that crypto-asset-related activities can be performed in a safe and sound manner, are legally permissible, and comply with applicable laws and regulations, including those designed to protect consumers,” the statement said. They should also “ensure appropriate risk management, including board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and monitoring, to effectively identify and manage risks.”
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Read More:WEF says cryptos will revolutionize the global financial system as U.S. regulators highlight the risks
2023-01-03 21:21:00
