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, decentralized metaverse develops, existing crypto-asset risks may evolve to have systemic consequences for financial stability.
“Wide adoption of crypto in the metaverse, or any other framework, will require adherence to strong consumer protection and financial stability regulatory frameworks,” they pointed out.
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.”
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.
“That is, if these revelations occur, the crystallization of crypto-asset risk may lead to: loss of balance in households and businesses, impact on unemployment, sale of traditional assets to non-banks to respond to margin calls on crypto-asset positions, and negative 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, saying:
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 economist and policy analyst at the Bank of England? Let us know in the comments section below.
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