The Financial Stability Board (FSB) has issued a warning about the growing risks in the cryptocurrency sector, cautioning that the connections to traditional finance are approaching a critical threshold.
The outgoing FSB Chairman Klaas Knot stated during a speech in Madrid on Thursday that while cryptocurrencies currently do not pose systemic risks to traditional finance, this situation may not last long. He said, "We may be approaching a tipping point."
Knot pointed out that the entry barrier for retail investors has "significantly lowered," especially with the launch of cryptocurrency exchange-traded funds (ETFs). Cryptocurrency ETFs allow investors to gain exposure to digital assets without having to manage private keys, use crypto wallets, or navigate exchanges.
Knot added that another concerning area is the stablecoin market. He noted that issuers now hold a significant amount of U.S. Treasury bonds, which increases the connection between cryptocurrencies and traditional finance. He remarked, "This is an area that we clearly need to monitor closely."
Stablecoins—digital assets pegged to fiat currencies like the U.S. dollar—are becoming increasingly embedded in the financial system. According to DefiLlama, the total market capitalization of stablecoins exceeds $251 billion.
A recent research paper from the Bank for International Settlements (BIS) analyzed the growing impact of stablecoins on traditional finance, focusing on their effect on short-term U.S. Treasury yields.
Using daily data from 2021 to 2025 and instrumental variable methods, the paper found that inflows of stablecoins reduce three-month Treasury yields by 2 to 2.5 basis points within ten days, while outflows increase yields by 6 to 8 basis points.
These effects are concentrated on short-term maturing bonds, with minimal impact on long-term bonds. Among issuers, USDT has the largest impact, followed by Circle's USDC, confirming the influence of stablecoins in the Treasury market.
Knot, who also serves as the President of De Nederlandsche Bank, the Dutch central bank, will step down from both positions on June 30. Andrew Bailey, the Governor of the Bank of England, will succeed him as FSB Chairman, while the Netherlands has yet to appoint a replacement.
On Wednesday, the U.S. Senate passed the "Guidance and Establishment of a National Stablecoin Innovation Act" (GENIUS Act) with a vote of 68 to 30, a key stablecoin legislation aimed at establishing regulatory clarity for dollar-backed digital assets. This vote paves the way for comprehensive debate and a final vote in the Senate, after which the bill will be submitted to the House of Representatives.
If the bill is passed, it will create a national framework for stablecoin issuance, enhancing the global competitiveness of the U.S. digital asset industry.
Related: USDT issuer Tether acquires 32% stake in Canadian gold royalty company
Original article: “FSB Warns Crypto Approaching 'Tipping Point,' Deepening Ties to Traditional Finance”
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