Bitcoin’s big rally has been attributed time and again to the fact that the Financial Stability Board (FSB), a major international regulatory body, delivered a letter to the G20 finance ministers and central bank governors declaring that Bitcoin does not post a “systemic risk.” The overall market sentiment seems to be that the FSB’s declaration serves as a positive signal for the currency, providing a basis for the $1,000+ rally in Bitcoin’s value arising just as the G20 meets to discuss cryptocurrency policy in Buenos Aires.
However, if this was the spark for the Bitcoin rally, traders are almost certainly reading (way) too much into the FSB’s comments – a trend apparently continuing in the aftermath of comments from G20 participants that cryptocurrency discussions were “productive” .
First, the FSB is only repeating views other regulators and agencies have made for years. As early as January 2016, the International Monetary Fund (IMF) reports have stated that virtual currencies “do not pose systemic risks to financial stability, owing to their small scale and limited linkages to the financial system.” Similarly, US regulators have collectively acknowledged via the Dodd-Frank mandated Financial Stability Oversight Council that virtual currencies are used only by a “very small” number of consumers and said their impact on financial stability at present is “likely limited.” Even at times the skeptical Bank of England has noted that digital currencies could only pose a risk “if a digital currency attained systemic status as a payment system.” But the general implication has always been, “but we’re not there yet.”
Second, the real action in the letter was in what the FSB, which is responsible for coordinating international regulatory action, was intending to do. Indeed, the letter was as much a foreshadowing of future regulation as it was anything else:
Crypto-assets raise a host of issues around consumer and investor protection, as well as their use to shield illicit activity and for money laundering and terrorist financing. […]
Relevant national authorities have begun to address these issues. Given the global nature of these markets, further international coordination is warranted, supported by international organisations such as CPMI, FATF and IOSCO.”
These comments do not represent a détente in cryptocurrency regulation. Instead, the FSB is signaling that some of the efforts taken to combat fraud in the United States and elsewhere will be implemented on an increasingly international dimension. Expect more coordination in antifraud enforcement from the International Organization of Securities Commissions (IOSCO), the international securities body, with the US Securities and Exchange Commission taking the lead. Meanwhile, don’t be surprised to see finance ministries and treasury departments advancing new security safeguards via the Financial Action Task Force (FATF), the international forum for combatting anti-money laundering and terrorism financing, as well as central bankers raising global standards for clearing and settlement operations at the Committee on Payments and Market Infrastructures (CPMI).
The fact that the FSB was delivering the note to the G20 was in part a procedural step tied to facilitating the G20 summit, which included discussions on a range of supervisory matters, including cryptocurrencies. But make no mistake, international regulatory work streams are already very much gearing up, a fact highlighted by the concerns of many of G20’s members on the meeting — and the jury is out as to what impact the enhanced scrutiny will ultimately have on cryptocurrency prices and the future shape of the market.