Bank of England Analysts See Crypto Having Important Roles in the Metaverse

Jamal Molla
Written By Jamal Molla
Jamal is an English teacher and freelance writer with a passion for NFTs, metaverse, crypto and technology.

Bank of England analysts see crypto having important roles in the metaverse. The bank made this known on Tuesday in a blog post titled “Cryptoassets, the metaverse and systemic risk.” In the blog post, the bank’s Economist, Owen Lock, and Policy Analyst, Teresa Cascino, said that “widespread adoption of crypto in the metaverse … would require compliance with robust consumer protection and financial stability regulatory frameworks.”

Bank of England’s Analysts on the Metaverse, Crypto, and Regulation

The Bank of England cautioned that “cryptocurrency and its associated assets could have important roles within the metaverse.” The more the metaverse grows, the inherent risks from crypto assets may scale up financial stability consequences in the system. The bank stressed that “widespread adoption of crypto in the metaverse, or any other setting, would require compliance with robust consumer protection and financial stability regulatory frameworks.”

The duo of Owen Lock and Teresa Cascino explained that in the metaverse world, users require a means to own and transact digital objects, which are interoperable between virtual worlds. “We think cryptoassets are well placed to play an important role here. “If a sizable open-metaverse materialized, households may hold a greater share of their wealth in cryptoassets to make metaverse-based payments or for investment purposes,” they elaborate.

They added that businesses and corporations may expand their scope of accepting crypto payments for goods and services. “Corporations may start to sell digital assets like watch and clothing NFTs in the metaverse,” they asserted. Buterin: layer-2 scaling will make crypto payments make sense again. If a growing open-metaverse improves the welfare of users, they added that non-bank financial institutions may begin to add crypto assets into their investment portfolios.

“This evolution of the metaverse is uncertain,” adding that their view is a possibility, rather than a certainty,” Lock and Cascino noted. They also warned that a cryptoasset risk crystallizing could result in: balance sheet losses for households and corporates, an impact on unemployment, fire-sales of traditional assets from non-banks to meet margin calls on cryptoasset positions, and negative profitability impacts on exposed banks.”

Lock and Cascino concluded that all things being equal, the higher the market size, the higher would also be the risks associated with cryptoasset involvement. They emphasized that regulators need to address any risks from cryptoassets before they transform to witch-hunt the entire financial system.

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