Bank of England ‘Cryptocurrencies are Important for the Metaverse!
Bank of England economist Owen Lock and politician Teresa Cascino shared a post on Tuesday. It is a blog post titled ‘cryptoassets, the Metaverse and systemic risk’. They started the post by saying that ‘cryptoassets could have important roles in the Metaverse’. Then they said that ‘if an open and decentralized Metaverse grows, the existing risks from cryptoassets could scale to have systemic financial stability consequences.
Widespread adoption of crypto in the Metaverse or any other environment requires robust consumer protection and compliance with financial stability regulatory frameworks. Lock and Cascino argue that “the Open Metaverse must have digital objects that can interoperate across virtual worlds. They also explained that it will require a means to process them. ‘We think crypto assets are well positioned to play an important role here,’ Lock said. Furthermore, companies are increasingly accepting crypto payments for goods and services. Moreover, it is possible to sell digital assets in the Metaverse world, such as non-clothing NFTs. The authors said that a growing open Metaverse could improve the investment prospects of crypto assets. They also point out that non-bank financial institutions could increase their crypto holdings if they also improve their supporting infrastructure.
However, if these risks materialize, a cryptoasset risk realization could turn out differently. Balance sheet losses for households and companies are likely. Also, as an impact on unemployment, there would be fire sales of traditional non-bank assets to cover margins on crypto asset positions. Moreover, there will be negative profitability impacts on exposed banks. Therefore, as an important step, regulators need to intervene before the systemic situation is reached. In this context, they need to address the risks arising from the use of crypto in the Metaverse.
The recent interest in the Metaverse is facing regulation. Against the increasing measures of central banks, each country’s own bank follows a different policy. Some countries are staying out of it, while others are taking favorable decisions, and some are taking overly harsh ones. Dubai is resorting to laws that have been favorably received. It also wants to dominate the Metaverse world. Unlike some countries that impose harsh bans, it is signing new agreements every day.