Crypto Threat to Global Finance Grows as Stablecoins and ETFs Expand

Outgoing Financial Stability Board Chair Klaas Knot has issued a warning that cryptocurrency may pose a threat to global financial stability. This warning comes as the connections between crypto and traditional finance continue to grow. Knot emphasized that while crypto does not yet pose a systemic risk, recent developments suggest that the world may be approaching a critical juncture.

Knot highlighted the role of stablecoins in linking the two financial systems, noting that stablecoin issuers now hold substantial amounts of U.S. Treasuries. This segment, he said, must be monitored closely due to its potential impact on financial stability.

In addition to stablecoins, Knot flagged the rapid growth in retail access to crypto via exchange-traded funds (ETFs). He noted that barriers for retail users have dropped significantly with the introduction of crypto ETFs, leading to increased interlinkages with the traditional financial system. Knot acknowledged that the rise of crypto has been driven in part by inefficiencies in cross-border payments, but he stressed the need for appropriate regulation to manage the risks associated with this growth.

Knot emphasized that the crypto ecosystem will continue to evolve, and so must regulatory frameworks. He pointed out that jurisdictions are actively developing rules and that the FSB’s recommendations offer a common foundation for this effort. This is particularly important given the inherently cross-border nature of crypto.

Knot also discussed parallel concerns with climate change and the financial sector’s preparedness. He underscored the importance of global coordination across all areas, stating that financial stability is an international public good. Every issue he mentioned—including non-bank financial institutions, banking, crypto, payments, and climate—crosses borders, and so must the response.

Knot’s term at the FSB ends on June 30, and he will be succeeded by Bank of England Governor Andrew Bailey.