U.S. New York Fed: Growing crypto market could threaten financial system

The U.S. New York Federal Reserve's (Fed) November Economic Policy Review warned that while the crypto market has been relatively small so far, it could become a threat to the financial system if it continues to grow. The report highlighted that cryptocurrencies are highly volatile, with risks such as "run risks" contributing to price fluctuations. It also noted that the widespread use of high leverage in the industry tends to amplify various risks, and the ecosystem is closely interconnected. In addition, the lack of a clear and consistent regulatory framework has made these vulnerabilities worse. Many crypto companies are based overseas or have unclear legal statuses, such as decentralized autonomous organizations (DAOs). The report also raised concerns about stablecoins, pointing out that they not only contribute to instability within the crypto ecosystem but could also lead to broader financial risks. A liquidity crisis triggered by stablecoins is a potential concern. While major stablecoins have improved in terms of asset quality, Tether remains a notable risk. Decentralized stablecoins like DAI are even riskier, as DAOs can take longer to respond to market crises. Additionally, if large stablecoins were to suddenly sell off significant amounts of U.S. Treasury bonds, it could negatively affect traditional financial markets.