Federal Reserve Warns of Risks of Cryptocurrency and Related Transactions
It is reported that the Federal Reserve issued a new statement on Thursday (February 23) local time to remind banks of the inherent risks of cryptocurrency and…
It is reported that the Federal Reserve issued a new statement on Thursday (February 23) local time to remind banks of the inherent risks of cryptocurrency and related asset transactions. The statement said that due to the unpredictability of the scale and time of deposit inflow and outflow, some capital sources from entities related to encrypted assets may bring higher liquidity risk to banking institutions. The stability of such deposits may be related to the demand for stable currency, the confidence of stable currency holders in stable currency arrangements, and the reserve management practices of stable currency issuers. At the same time, banks are also advised to pay attention to those cryptocurrency companies that inaccurate or misleading indicate their deposit insurance status. The Federal Reserve stressed the volatility of the cryptocurrency market, the risk of bank runs, and the market pressure and customer panic and uncertainty caused by market events such as the decoupling or “dislocation” of the Terra USD (USD) stable currency from the US dollar.
Federal Reserve: Banks need to pay attention to the inherent risks of cryptocurrency and related asset transactions
Interpretation of the news:
The Federal Reserve has issued a statement emphasizing the inherent risks associated with cryptocurrency and related asset transactions. The statement warns banks of the unpredictability of scales and time frames for deposit inflows and outflows, which may result in higher liquidity risk for banking institutions. It highlights the importance of stable currencies and the risk of bank runs, resulting from market events such as the decoupling of the Terra USD stable currency from the US dollar.
One of the primary concerns raised in the statement is related to the unpredictability of cryptocurrency transactions. Unlike traditional currency transactions, cryptocurrency has no physical backing, and its value is based on market demand. This unpredictability of cryptocurrency value can lead to fluctuations in inflows and outflows of deposits, increasing the liquidity risk associated with such transactions.
Moreover, the stability of cryptocurrency deposits is not only related to market demand but also to the confidence of stable currency holders in stable currency arrangements, and the reserve management practices of stable currency issuers. Any inaccuracies or misleading claims made by cryptocurrency companies regarding their deposit insurance status can also lead to misleading economic choices.
The Federal Reserve also stresses the importance of stable currencies, which provide a fixed exchange rate for cryptocurrencies. While stable currencies provide an added layer of stability, any disruptions in the stable currency market, such as the decoupling of Terra USD stable currency from the US dollar market, may cause market pressure and customer uncertainty, leading to bank runs and systemic risks.
In summary, the statement is a reminder to banks and financial institutions to be cautious while dealing with cryptocurrencies and related asset transactions. The banking industry must take cognizance of the risks associated with cryptocurrencies, their unpredictability, and the importance of stable currencies in providing an element of stability in this market.
Overall, the Federal Reserve’s statement serves as a warning to banks and financial institutions to protect themselves and their customers from the risks associated with cryptocurrency transactions, including market volatility, liquidity risk and systemic risks, and the importance of stable currencies in providing stability in such markets.
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