It Is Important To Have a Common Approach For Crypto Assets: RBI Report
The report also added that various options are being considered internationally in this context
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The financial stability report released by the Reserve Bank of India (RBI), on Thursday, stated that in order to address the potential financial stability risks and protect investors, it is important to arrive at a common approach to crypto assets, according to a PTI report. The report also added that various options are being considered internationally in this context.
Stating the various options, the report segregated it into three and noted that, one option is to apply the same-risk-same-regulatory-outcome principle and subject them to the same regulation applicable to traditional financial intermediaries and exchanges. Another option is to prohibit crypto assets, since their real life use cases are next to negligible and the challenge is that different countries have different legal systems and individual rights vis-à-vis state powers. A third option is to let it implode and make it systematically irrelevant as the underlying instability and riskiness will ultimately prevent the sector from growing.
Regulating new technology and business models after they have grown to a systematic level is challenging. As per the report, to promote responsible innovation and to mitigate financial risk in the crypto ecosystem, it is important for policymakers to design a matchable policy approach.
The breakdown and bankruptcy of the crypto exchange FTX and subsequent sell-off in the crypto assets market have highlighted the inherent vulnerabilities in the crypto ecosystem. Pointing out such instabilities, the report noted that the crypto assets are highly volatile. Moreover, it also found out that crypto assets exhibit high correlations with equities.
Eventually, this exposed them to credit, market and liquidity risks disproportionate to what was necessary to discharge their essential functions, as per the report. In addition to this, leverage is a constant theme across the crypto ecosystem, making failures rapid and losses huge and sudden, as per the report.