Sir Jon Cunliffe, who holds position of the deputy governor at the Bank of England (BOE), revealed that crypto investors and traders are in for a hard time as the Federal Reserve and a handful of central banks worldwide tighten monetary policy.
For quite some time, the Federal Reserve’s actions have sent chill waves throughout the crypto industry after it announced its decision to hike interest rates and revamp other strict financial guidelines targeting the industry.
The chairman of the U.S. Federal Reserve, Jay Powell, insists that the Fed will consistently tighten the country’s monetary policy until it is convinced that inflation has dropped to the required index of 2%.
In reaction, the crypto market tanked, with Bitcoin leading the way in the price downtrend with a 9.40% drop, as other top-performing digital tokens also followed suit. The price drop for Bitcoin is regarded as the biggest over the past four months.
However, this does not dispute that periodic price changes are not common in the crypto market. Still, following the Fed statement about interest hikes to restrain inflation, the industry has been following the pattern of Wall Street in contrast to the previous crypto-related price swing.
Bank Executive Cautions about Digital Currencies
At a Wall Street Journal conference held on Tuesday, Sir Jon Cunliffe warned the crypto industry to brace up for more hardships in the coming weeks as the Federal Reserve is not relenting on increasing the interest rate.
Additionally, central banks are actively working on implementing strident monetary policies to tighten the financial sector to lure investors to safer assets.
Cunliffe further added that increased interest rates, especially in the United States, are set to trigger investors to move out of risky assets, which would harm the progress of the digital asset industry.
Another factor mitigating against the crypto industry is the Russian-Ukraine war, which has seen investors continually move funds to safer assets like gold. A move out of risky assets means that speculative ones will take a hit directly or indirectly.
Crypto is a Threat to British Financial System
Last November, the Bank of England’s deputy governor stated that cryptocurrency has continued to be a hurdle in achieving financial stability in Britain, urging regulators to move quickly to avert the situation.
In December last year, Cunliffe disclosed that the value of cryptocurrencies would fall significantly, adding that prices may vary, but they are bound to drop to zero in the coming years.
Furthermore, the BOE deputy governor admitted that only a handful of the U.K.’s household wealth is stored in digital assets like Bitcoin. Still, they are beginning to be adopted by many households, and should their value fall, it would have a spillover effect on the wider financial sector. As a result, the U.K. has been making efforts to oversee the operation of the crypto industry.
That said, regulators are determined to put mechanisms in place to check the circulation of cryptocurrencies in their mainstream financial sectors.