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Bank of England Analysts See Cryptocurrencies Playing Major Roles in the Metaverse

Bank of England analysts say crypto assets could play important roles within the metaverse. “Widespread adoption of cryptocurrencies in the metaverse… would require adherence to strong regulatory frameworks for consumer protection and financial stability,” they added.

Bank of England Analysts on Metaverse, Cryptography and Regulation

Bank of England economist Owen Lock and policy analyst Teresa Cascino published a blog post titled “Crypto Assets, the Metaverse and Systemic Risk” on Tuesday.

“Crypto assets can play important roles within the metaverse,” they began, warning:

If an open, decentralized metaverse grows, existing cryptocurrency risks could increase to have systemic consequences for financial stability.

“Widespread adoption of cryptocurrencies in the metaverse, or any other environment, would require adherence to strong regulatory frameworks for consumer protection and financial stability,” they emphasized.

Lock and Cascino explained that “the open metaverse will require a means to own and transact digital objects that are interoperable between virtual worlds”, explaining, “We believe that cryptographic assets are well positioned to play a significant role here.”

They detailed:

If a sizable open metaverse materializes, households can hold more of their wealth in crypto assets to make metaverse-based payments or for investment purposes.

In addition, companies can increasingly accept cryptocurrency payments for goods and services and sell digital assets such as clothing, non-fungible tokens (NFTs) in the metaverse, they added.

The authors also noted that non-bank financial institutions could increase their holdings in cryptocurrencies if a growing open metaverse improves investment prospects for crypto assets and their supporting infrastructure.

Lock and Cascino noted that “this metaverse evolution is uncertain”, adding that their point of view is a possibility rather than a certainty.

“That said, if these exposures materialize, the risk crystallization of a crypto asset could result in: balance sheet losses for households and businesses, impact on unemployment, forced sales of traditional assets by non-banks to meet margin calls on crypto. active positions and negative impacts on the profitability of exposed banks”, they warned.