Bearish Crypto Report Willingly Ushers Bullish Consensus
16 Sep 2023 by Rory Kejzerko 4 min read
Bearish Crypto Report Willingly Ushers Bullish Consensus

Crypto adoption is increasing…and it’s apparent that central banks don’t like it 

With central authorities continuously clamping-down on crypto, bearish, centralisation-infused reports and so-called ‘studies’ are flying-out left right and centre. 

Most recently, the ‘Bank of International Settlements’ (BIS) - a.k.a. ‘the bank of central banks’ - published a report entitled ‘Financial stability risks from cryptoassets in emerging market economies’. 

Such report builds on the Financial Stability Board’s (FBS) ‘Crypto-Asset Reporting Framework’ (CARP) - which as previously reported, has a big say when it comes to the regulations of G20 countries. 


As you’ll later read, the report - which includes contributions from the central banks of the USA, Mexico, Brazil, and other Latin American countries - is engrained with irony, paradoxes, and bearish language choices. 

As such, it inadvertently does a succinct job at outlining why developing countries - many of which are governed by unstable fiat currencies- have opted for DeFi adoption over trusting traditional financial systems. 

The Bank of International Settlements’ Concerns 

In general, the report’s concerns relate to the prospect of crypto adoption damaging developing economies- i.e. the type of economies that have relatively high adoption rates already. 

Here, it makes an outlandish claim that:

“The crypto universe was built on the promise of an efficient, decentralised, low-cost, inclusive, safe, and open monetary system. But structural vulnerabilities in the design and operation of crypto asset markets make them unsuitable as the basis of a monetary system”. 

As central banks are the issuers of monetary policy through their alterations of interest rates, we can assume that this brash statement has been included to bolster traditional finance’s current stature as the only viable ‘monetary system’. 

With its main concern being the supposed ‘financial instability’ in which crypto poses, the authors outline a number of potential ‘risks’- with these being market risks, liquidity risks, credit risks, operational risks, currency substitutions, and capital flow risks. 


Market Risks

With an emphasis on volatility, this first concern relates to the consensus that publicly traded crypto companies are ‘inherently risky’. 

Ironically, it references crypto’s unequal distribution of ownership as problematic for market volatility- which, quite frankly, is a null and void point given that the ‘top 1%’ of the world own almost half of the entire fiat currency distribution. 

With stablecoins and spot Bitcoin ETFs alo in mind, the report then alludes to how barriers to entry are being lowered for ‘less sophisticated’ investors, as well as the fact that ETFs add direct and indirect exposure to crypto assets. 

Liquidity Risks 

With the majority of crypto trading taking place via off-shore exchanges such as Binance, the report claims that crypto lacks sufficient transparency. 

Additionally, it takes a swipe at Tether USD (USDT), stating that it’s still insufficiently backed. This is despite the fact that all major stablecoins - including USDT - are almost entirely backed by US debt. 

Credit Risks

The BIS’s credit risk concerns relate to a lack of governance, and how easily ‘agreed obligations’ can be missed. 

Here it cites things such as interconnected entities (such as FTX and Alameda Research), a lack of governance (i.e. DAOs), leverage opportunities, and crypto exchanges having access to bank accounts - which, given the bureaucratic difficulties across many developing economies, is a very hit-and-miss argument. 

Operational Risks

Operational risks relate to cyber attacks, and the fact that blockchain transactions are irreversible. Although crypto buffs would argue that this is where blockchain technology’s beauty lies, the report argues that crypto cyber attacks are extra troublesome, especially when funds should ideally be returned. 

Currency Substitutions

Per its own words, the report admits that ‘crypto could reduce the monetary control over liquidity in the economy’- i.e. a scenario that would funnel financial empowerment away from central banks and towards DeFi adopters. 

Here, currency substitutions, reserve currency substitutions, and bank disintermediation were all mentioned…to collectively come together and form a concept called ‘Cryptoisation 2.0’. 

If ‘Cryptoisation 2.0’ is to be achieved, the report states that crypto could ‘replace the global reserve currency as a perceived store of value’.

Capital Flow Risks

Crypto’s involvement in cross-border payments stirs-up a heap of concerns for the BIS. The majority of these form off its aversion to permissionless financial transactions, KYC omissions, and the fact that the organisation eventually wants crypto wallets to be linked to digital IDs. 

Inadvertent Crypto Bullish Findings 

Although flooded with concerns, the report includes many inadvertent bullish comments.

These mainly manifest as acknowledgements of the reasons behind people’s crypto adoption - such as the fact that DeFi offers lower transaction costs, faster payments, no intermediation, anonymity, and potential for high returns. 

Instead of arguing against these reasons, the report simply follows up by saying ‘whether they deliver on these claims is another matter’...

Additionally, the report also acknowledged that crypto assets can provide an alternative to ‘limited investment and savings instruments,’ whilst for those with volatile domestic currencies (i.e. many developing countries), it offers somewhat of a ‘safe haven’ investment opportunity. 


As a conclusion, the report ponders over classic centralisation strategies for crypto ‘control’- or rather, ‘combat’. More specifically, these measures include bans, containment, and regulation.

In whittling-down its options - and in short- it disregards the first two, as with the inevitably of crypto and DeFi technology, bans and containment aren’t necessarily feasible options.

Further, ‘regulation’ is deemed the most viable option, however with this, the BIS acknowledges that relegation could inadvertently entice more crypto adoption (as now intuitions will be involved). Such prospect is bolstered by the fact that the BIS is to allow central banks to hold 2% of their reserves as crypto come 2025. 

With this in mind- and despite its effort to add bearish pressure to proceedings - the report suggests that a mass adopted - albeit regulated - crypto future may be on the horizon. 

Read the full ‘Financial stability risks from cryptoassets in emerging market economies’ report here

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This article is intended for educational purposes and is not financial advice.