US regulators recently issued a statement warning that banks holding cryptocurrencies could be in breach of safe and sound banking practices. The candour of the announcement follows a dramatic drop in crypto asset valuations over the past year, as well as investor losses due to fraud at a prominent crypto institution.
Moody’s believes the cautionary stance of regulators is a positive sign and will foster a more stable banking environment, which should reduce the major risks associated with the highly volatile and complex crypto asset class. However, it will also slow the pace of investment and development in the sector.
“The warning is likely to reduce capital investment in crypto assets by both traditional banks and venture capital firms,” the report noted. However, some suggest the more measured growth could be beneficial in the long-term, particularly if governments get involved.
“Despite crypto failures, governments continue to explore ways to modernize money and payments for the digital age,” it continued. “The US agencies’ cautious attitude suggests any change to the US money and payments system will be state-led rather than a private cryptocurrency solution.”
