Pre-Market Actions: How Cryptocurrencies Could Trigger a Financial Crisis

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What happens: In a new reportThe Financial Stability Board – an international body that brings together regulators from 24 countries and jurisdictions – said the “rapidly evolving” crypto market could quickly reach a point where it becomes a “threat to global financial stability” by due to its size, structure, vulnerabilities and growing links with the traditional financial system.

“The risks to financial stability could quickly escalate,” the group said this week, adding that policymakers needed to step up their efforts.

The assessment comes as banks and other big market players increase their exposure to crypto due to customer demands, despite its volatility.

On Thursday, bitcoin plunged nearly 8% as the broader market sold off. On the same day, Sequoia Capital said it was ramping up its crypto business with a new $500-600 million fund. The venture capital giant said it would focus “primarily on liquid tokens and digital assets.”

“Banks and other systemically important financial institutions are increasingly willing to undertake activities and exposure to crypto-assets,” the FSB said. “If the current trajectory of growing scale and interconnectedness of crypto-assets with these institutions were to continue, it could have implications for global financial stability.”

The State of Play: In 2021, the crypto-asset market more than tripled at one point to $2.6 trillion. It is still relatively little. Global stock markets, for comparison, were last valued at over $120 trillion.

Why, then, is the FSB sounding the alarm? The group said that because big players are getting involved, large swings in the crypto market could trigger a series of unexpected events. He even drew a comparison to occupations related to the housing market that helped trigger the 2008 financial crisis.

“As in the case of the subprime mortgage crisis in the United States, a small amount of known exposure does not necessarily mean a small amount of risk, especially if there is [is] a lack of transparency and insufficient regulatory coverage,” the FSB wrote.

Watch this space: after a slow start, governments may start to get more aggressive. Yahoo! News reported Thursday that US President Joe Biden could issue an executive order next week asking agencies to study crypto and develop a government-wide strategy to regulate digital assets.

Earlier this month, Congress held a hearing on the regulation of stablecoins. These are digital assets whose value is pegged to other currencies or commodities.

But UBS doesn’t think investors should hold their breath for clearer advice from lawmakers anytime soon.

“Regulators may be waiting a long time for action from Congress and in the meantime will have to tackle these issues using the limited and imperfect powers they already have,” the Swiss bank said last week.

Investors look nervously at the Ukrainian border

Global Markets stabilized friday after the threat of a possible Russian invasion of Ukraine propelled the Dow to its worst day of 2022.

But uncertainty about what happens next – and what it could mean for investors – persists.

Latest: Biden said on Thursday he believed an invasion of Ukraine could happen “in the next few days,” while his administration’s top diplomat warned that Russia had not withdrawn its troops, despite Moscow’s claims.

The developments helped push the Dow Jones down 1.8%, while the S&P 500 fell 2.1% and the Nasdaq Composite 2.9%.

“Investors, wary of any bad news, have been unable to sustain positive momentum in stock markets around the world as geopolitical risks dominate headlines,” said Peter Essele, chief investment officer of portfolio for Commonwealth Financial Network.

He added that “further escalation in near-term tensions could disrupt markets,” which are already jittery over global supply chain issues as the Federal Reserve prepares to raise interest rates for the first time in years.

On the radar: The price of gold rose 1.5% on Thursday, although it retreated slightly on Friday. It is now trading near $1,890, just below its highest level since June.

The yellow metal, a common safe-haven investment, is benefiting from the uncertainty over the situation in Ukraine, as well as concern over rising inflation which may trigger a rush into physical assets.

Will the New York offices be full again?

New York City Mayor Eric Adams appealed to workers this week: Get back to the office. Please.

Adams told a press conference that in the largest city in the United States, progress on returning to the office peaked at more than 35% in early December, but fell to just over 10% in January as fears over the Omicron variant grew. He “still hasn’t recovered,” he said.

Why it matters: “When employees aren’t returning to work, they aren’t eating lunch at a nearby restaurant, shopping at a local store, or taking their clothes to the dry cleaners,” Adams said. “Our business districts are hurting, and that’s holding back the recovery.”

He added that due to remote working, office vacancy rates are at their highest level in 40 years, which equates to more than 83 million square feet of empty space.

But Adams probably shouldn’t hold his breath for workers to get back to the routines they had before the pandemic.

According to a Pew poll released this week, 59% of Americans whose work can be done remotely say they still work from home almost permanently. Before Covid-19, that number was 23%.

Crucially, 60% of workers whose work can be done from home say they would like to work from home all or most of the time when the pandemic is over, if they had the choice. That’s up from 54% in 2020.

The main reason given? It’s just their preference now.

following

Blooming brands (BLMN)DraftKings and Deere (OF) publish the results before the opening of the American markets.

Also today: Existing home sales for January arrive at 10 a.m. ET.

Coming next week: It’s time for retail revenue. The results are expected from Macy’s (M), Home deposit (High Definition), Lowe’s (moo)Bath & Body Works and TJX (TJX).

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