According to the Bank of England (BOE), a US$2 trillion decline in the value of cryptocurrency assets highlights market vulnerabilities and emphasizes the need for more stringent cryptocurrency regulation and law enforcement.

According to the Financial Policy Committee of the BOE, the market capitalization of digital assets has decreased to roughly US$900 billion from a peak of almost US$3 trillion in late 2021.

Recent instances of “extreme volatility” have exposed market weaknesses, such as liquidity mismatches that have triggered fire sales and participants’ unwinding leveraged positions. According to the Central Bank, those market characteristics could aggravate additional price declines.

Regulators in the UK and Europe have stepped up their criticism of the sector, claiming they are worried that a ripple effect from the cryptocurrency market might harm the larger financial system.

According to the BOE, at the moment, the recent volatility in the cryptocurrency markets isn’t endangering the system as a whole. However, if the activity surrounding crypto assets and its links to banks and other markets continues to expand, systemic dangers could develop if nothing is done.