- Crypto assets like bitcoin are getting nearer to posing a financial stability risk, a top Bank of England official warned.
- Because cryptos are growing very fast, they are becoming more integrated with the financial system, Jon Cunliffe said.
- Regulators and legislators need to "think very hard" about the risks closing in, he said.
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Crypto assets like bitcoin are evolving so rapidly that they are becoming more of a potential threat to the global financial system, Bank of England's deputy governor Jon Cunliffe has warned.
"On the question of bitcoin and other crypto assets and their value, my judgement is they are not at the moment a financial stability risk," he said, speaking in an interview with BBC Radio 4 on Monday.
"But they are growing very fast, and they are becoming integrated more into what I might call the traditional financial system," he added.
"So the point at which they pose a risk is getting closer, and I think regulators and legislators need to think very hard about that."
Crypto assets have exploded in popularity, and their total market capitalization has swelled from $463.4 billion a year ago to $2.8 trillion today, according to CoinGecko data. But regulators are still working on developing rules to oversee the evolving space.
Cunliffe has previously raised a red flag over what happens if cryptocurrencies' typically high volatility spills over into traditional markets. He said in October that a crash in crypto markets is plausible.
The International Monetary Fund warned the same month about the dangers of excessive speculation and the potential for "runs" on seemingly stable assets.
But Cunliffe has also said the UK's central bank has started finding ways to manage risks in decentralized finance, where peer-to-peer transactions on the blockchain deliver financial services without a go-between bank or broker.
The BoE has started talking to the financial industry and tech companies to find out whether to issue its own cryptocurrency, a digital pound nicknamed "Britcoin." But the central bank digital currency, or CBDC, is unlikely to be launched until after 2025.
Even so, Cunliffe told Radio 4 the central bank digital currency, or CBDC, could "anchor and hold together our monetary system."
"The way we live and the way we transact is changing all the time. Our lives are ... becoming more digital. And as that happens, the way we use money and the money we hold changes," the deputy governor said.
"The question is whether the public at large — businesses, households — should really have the option of using and holding the safest money, which is Bank of England money, in their everyday lives."
Cunliffe also highlighted that digital money projects from the likes of Facebook, whose stablecoin Libra is now known as Diem, are not a concern for US regulators yet.
"There are proposals from new players who are not banks, including some of the big tech platforms — some of the social media platforms — to come into the world and issue their own money," he said.
"But I think those proposals don't yet exist at scale. So I don't think we're behind the curve here on the regulation and management of crypto assets."