Office Of Financial Research Says Crypto Is Not A Threat To Financial Stability

A new report claims that crypto is not a threat to the US financial system. However, it is worth watching due to the growing and evolving nature. This is according to a recent report from the Office of Financial Research.

The Office of Financial Research released its annual report, which shows that crypto does not threaten the financial stability of the US. According to the OFR, the crypto market is too tiny and is not likely to affect the GDP or household wealth of the US in any significant manner. The OFR is an independent bureau that works under the Treasury Department.

One major reason they gave is that the crypto world in total is quite small compared to the US economy. For instance, the report noted that the BTC has a market cap of just $115 billion. Meanwhile, the money supply of the US was close to $14 trillion.

However, the agency said that it would continue to monitor crypto. This is because the crypto world is always growing and changing. While crypto does pose a threat to the financial system, the threat is too tiny. The OFR also noted that it could be magnifying some of the financial stability risks that exist such as liquidity and market risks.

For example, the OFR noted that few loans backed by crypto were subjected to risk of collateral shortfall. This was because crypto was so volatile. The agency went on to explain that while almost all banks had banned crypto purchase using credit cards, an issuer of cards who allows crypto purchases might experience bigger losses.

The OFR also noted that some crypto exchanges were allowing margin trading. As a result, buyers can borrow some of the funds they use to trade. The agency also noted that contracts tied to crypto were dangerous. It was especially so when those contracts were sold on exchanges. This could lead to a contagion risk via exchanges, which are interconnected.

The Dodd-Fran Act created the Office of Financial Research. It gives regulators of the financial world holistic view of what is happening. This way, regulators can discover potential risks and deal with them as soon as they occur.

The lack of this overview was often blamed for causing the 2008 financial meltdown. The reason it occurred was that each of the regulators only saw a piece of the entire system. Thus, they did not see the real threat as it came.

It allows the regulatory bodies and legislators to see the entire system from an objective standpoint. Besides simply collecting the data, they take time to analyze and give their opinion on what might be needed to remedy the situation. This could be a positive sign for the crypto world. It shows that the regulators do not see crypto in an unfavorable light. It might actually help to bring back some of those leaving the crypto.

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