The Financial Stability Board (FSB) has issued warnings about increasing systemic risks within the cryptocurrency market, highlighting the growing integration between crypto assets and traditional financial systems. According to Klaas Knot, Chair of the FSB, recent developments have significantly lowered barriers for retail investors, largely due to the introduction of crypto exchange-traded funds (ETFs). This expanded access has, in turn, amplified market vulnerabilities through deeper connections between cryptocurrencies and conventional finance.
Stablecoins, particularly USDT and USDC, are central to the FSB's concerns because of their significant holdings of U.S. Treasury securities, linking crypto liquidity directly to traditional debt markets. This accumulation heightens the potential for liquidity risks to propagate across financial systems, marking a shift in the FSB’s earlier stance that crypto did not constitute systemic risk.
The warnings emphasize the necessity for strengthened regulatory oversight and adaptation to manage the intertwined risks arising from crypto ETFs and stablecoins. The FSB points to ongoing legislative efforts such as the GENIUS Act in the U.S. Congress, which seeks synchronized global regulatory approaches to stabilize and oversee digital assets. Given these dynamics, the FSB advocates for continuous monitoring of market developments and policy evolutions to preempt financial contagion risks stemming from crypto assets.