A United States banking industry regulator warned banks of the “emerging risks” of cryptocurrencies saying the sector should take a “cautious approach” and seek permission in some cases when engaging with crypto or crypto firms.

Citing “dislocations” in the crypto market over 2022 the Office of the Comptroller of the Currency (OCC) highlighted what it said were “several key risks” of crypto in its Dec. 8 Semiannual Risk Perspective for Fall 2022 report.

Its three main concerns are that “stablecoins may be unstable,” the crypto industry lacks mature risk management practices and has a high risk of contagion due to the “high degree of interconnectedness.”

The space’s lack of “consistent or comprehensive regulation” and the volatility of crypto along with the increased range of firms offering “bank-like products and services” using crypto and tokenized assets were also cited as concerns, which the OCC believes raises questions regarding financial stability.

The depeg and collapse of the TerraClassicUSD (USTC) algorithmic stablecoin in May was given as an example of stablecoins’ “run risk,” and how asset-backed stablecoins also saw minor depeg events as a result.

It highlighted stablecoin backings have “incrementally evolved” since, but believes most “remain susceptible to run risk.”

Discussing risk management the OCC said practices at crypto firms were maturing but are “not yet robust” with firms appearing “unprepared for the stresses and surprises” over the past year that saw losses for millions of investors, it added:

Hacks and outages are frequent, and fraud and scams remain high throughout the industry. In some cases, ownership rights, custody arrangements, and financial representations have created a high degree of confusion.

The crypto market over 2022 also revealed the industry’s “interconnectedness [...] through a variety of opaque lending and investing arrangements” according to the OCC.

It remarked crypto participants “may be engaging in highly leveraged trading” which resulted in the noted contagion risk.

In its advice to banks, the OCC said institutions considering engaging with crypto or crypto companies “should take a careful and incremental approach.”

The OCC advised national banks that crypto-related plans should be discussed “with their supervisory office” before they engage in any activities as some potentially require permission.

Crypto companies have moved to improve transparency in the wake of the bankruptcy of FTX with many exchanges introducing proof-of-reserves so users can verify crypto backings along with some conducting public third-party audits.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Cryptos feed Join Telegram

Recommended content


Recommended Content

Editors’ Picks

Will Fed’s hawkish tone drive altcoin gains off a cliff?

Will Fed’s hawkish tone drive altcoin gains off a cliff?

Optimism (OP), MAGIC (MAGIC) and Stargate Finance (STG) are the top gainers in the last 24 hours. The rally of these altcoins can be attributed to the volatility generated by the interest rate decision and the Fed’s policy meeting that took place on Wednesday. 

More Crypto News

Fed remains hawkish with 25 bps hike, how will Bitcoin price react?

Fed remains hawkish with 25 bps hike, how will Bitcoin price react?

Bitcoin price plunged to its weekly low of $22,862 earlier today, as traders awaited the US Federal Reserve’s rate hike decision. BTC has traded sideways in the 24-hours preceding the rate hike announcement.

More Bitcoin News

Cardano price is looking to reclaim this level to mark a 17% rally and recover 4-month-old losses

Cardano price is looking to reclaim this level to mark a 17% rally and recover 4-month-old losses

Cardano price has been treading steadily upward, recovering the losses it endured over the last few months. The uptrend with ADA potentially heading toward $0.45 might differ.

More Cardano News

ApeCoin Price Prediction: Has the downtrend already started?

ApeCoin Price Prediction: Has the downtrend already started?

ApeCoin price shows subtle cues to suggest that a downtrend move could occur. The possibility of a liquidation event should not be ruled out moving forward.

More ApeCoin News

Bitcoin: If bulls are back, this is where you can accumulate BTC next

Bitcoin: If bulls are back, this is where you can accumulate BTC next

Bitcoin price shows a lack of momentum after an explosive move in the last three weeks. The fourth week has been relatively silent, without a lot of volatile moves. While BTC consolidates, other altcoins are rallying left and right, providing massive gains.

Read full analysis

BTC

ETH

XRP