Analysts at the Bank of England say that crypto assets can play an important role within the metaverse. “The broad adoption of crypto in the metaverse…requires compliance with strong consumer protection and financial stability regulations,” they added.
Bank of England Analysts on Metaverse, Crypto and Regulation
Bank of England economist Owen Lock and political analyst Teresa Cascino published a blog post titled “Cryptoassets, the metaverse and systemic risk” on Tuesday.
“Crypto-assets can play an important role in the metaverse,” they began, warning:
If an open and decentralized metaverse develops, the current risks related to crypto-assets can be assessed with systemic consequences for financial stability.
“Wide adoption of crypto in the metaverse, or any other framework, will require compliance with strong consumer protection and financial stability regulations,” they said.
Lock and Cascino explained that “an open metaverse will require a way of owning and processing digital objects that is interoperable in virtual worlds,” adding, “We believe that crypto-assets are well positioned to have an important paper here.”
They are detailed:
When a large open metaverse occurs, households can hold more of their wealth in cryptoassets to make metaverse-based payments or for investment purposes.
In addition, businesses can accept crypto payments for goods and services and trade digital assets, such as non-fungible wearable tokens (NFTs), in the metaverse, they added.
The authors also point out that non-bank financial institutions may increase their crypto holdings if a growing open metaverse improves investment prospects in crypto assets and their supporting infrastructure.
Lock and Cascino note that “this evolution of the metaverse is uncertain,” adding that their view is a possibility rather than a certainty.
As such, when these exposures occur, the crystallization of crypto-asset risk can lead to: loss of balance in households and businesses, impact on unemployment, sale of traditional assets to non-banks to respond on margin calls on crypto-asset positions, and effects on the profitability of exposed banks,” they warned.
“All other things being equal, the larger the size of the crypto-asset market, the greater the risks and the more systematic they can be,” the authors concluded, confirming:
Therefore an important step for regulators to address the risks associated with the use of crypto-assets in the metaverse before it reaches systemic status.
Do you agree with the Bank of England economist and policy analyst? Let us know in the comments section below.
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