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Approach With Caution: US Banking Regulator’s Crypto Warning

According to the Office of the Comptroller of the Currency (OCC), the digital asset industry is maturing but “not yet robust” in terms of risk management.

A US banking industry regulator warned banks of the “emerging risks” of cryptocurrencies, advising them to be “cautious” and seek permission in some cases when dealing with crypto or crypto firms.

The Office of the Comptroller of the Currency (OCC) highlighted “several key risks” of crypto in its Semiannual Risk Perspective for Fall 2022 report on December 8, citing “dislocations” in the crypto market over 2022.

Its three main concerns are that “stablecoins may be unstable,” the crypto industry lacks mature risk management practices, and there is a high risk of contagion due to the crypto industry’s “high degree of interconnectedness.”

The lack of “consistent or comprehensive regulation” in the space, as well as the volatility of crypto, as well as the increased number of firms offering “bank-like products and services” using crypto and tokenized assets, were also cited as concerns by the OCC, raising concerns about financial stability.

The depeg and collapse of the TerraClassicUSD (USTC) algorithmic stablecoin in May was cited as an example of stablecoin “run risk,” as were minor depeg events in asset-backed stablecoins.

It noted that stablecoin backings have “incrementally evolved” since then, but that most “remain vulnerable to risk.”

Concerning risk management, the OCC stated that practices at crypto firms are maturing but “not yet robust,” with firms appearing “unprepared for the stresses and surprises” that have befallen millions of investors over the past year.

“Hacks and outages are common, and fraud and scams are prevalent throughout the industry.” Ownership rights, custody arrangements, and financial representations have all caused significant confusion in some cases.”

According to the OCC, the crypto market in 2022 revealed the industry’s “interconnectedness through a variety of opaque lending and investing arrangements.”

Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Crypto is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Crypto market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.