The bitcoin price has ballooned over the last two years, surging from around $10,000 per bitcoin to almost $70,000 late last year. Ethereum, the second-largest cryptocurrency, has likewise rocketed higher—boosted by the surging popularity of so-called decentralized finance (DeFi), a blockchain-based alternative financial system.
The price of both bitcoin and ethereum have since crashed back, losing around 40%, and dragging down the wider crypto market that’s lost more than $1 trillion in value in less than six months as investors balk at the prospect of rapidly rising interest rates and an end to pandemic-era stimulus measures.
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“Crypto-asset markets are fast evolving and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system,” Klaas Knot, a Dutch central banker and the chair of the Financial Stability Board, wrote in an open letter this week, warning the finance ministers of the Group of 20 top economic powers that global financial stability cannot be taken for granted.
Knot, who in February called for “urgent” action to rein in the red-hot crypto market, pointed to Russia’s invasion of Ukraine as exacerbating the threat from bitcoin, ethereum and other cryptocurrencies.
“The Russia-Ukraine war has reinforced pre-existing concerns about the growth and potential illicit use of crypto-assets,” Knot wrote, adding “There is no room for complacency.”
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This week, U.S. officials targeted a Russian bitcoin mining company in its latest round of sanctions due to fears Russia could “monetize its natural resources” for power-intensive crypto mining to evade sanctions.
Earlier this month, bitcoin, ethereum and crypto concerns prompted the European Parliament to set out draft regulations for digital assets, designed to allow regulators to monitor potential money laundering and terrorist financing and following a Biden administration executive order in the U.S. directing various federal departments and agencies to collaborate on crypto regulation.