The increased use of cryptocurrencies in the metaverse could undermine financial stability, according to the Bank of England.
According to bank researchers Owen Lock and Teresa Cascino, large-scale real-world Bitcoin or Ethereum transactions in carried out in the metaverse could have an impact on the existing financial order.
Lock and Cascino argue that the larger the volume of such transactions, the bigger the ripple effects in the real world.
“The importance of cryptoassets in the open-metaverse means that if an open and decentralized metaverse grows, existing risks from cryptoassets may scale to have systemic financial stability consequences”, they said.
While a hypothetical at the present moment, their research is important. Numerous companies are rushing to create a metaverse experience, among them Facebook’s parent company Meta, Amazon and even Microsoft. The use of crypto assets in these environments hides some risks the staffers claim.
Lock and Cascino posit a scenario in which many consumers end up spending their time and money in the metaverse, attending virtual concerts or employed to sell items in stores in the metaverse.
It’s possible that households will choose to store some of their wealth in the metaverse and have their discretionary spending locked up in these new digital spaces, diverting resource from the “real world”.
But then, when factoring the volatility of cryptocurrencies, what could happen next is net loss to balance sheets for both households and corporate.
It’s still not confirmed whether the metaverse will use cryptocurrencies as the means of exchange, but the Bank of England is putting forth the evidence that if this happens, regulators will have new challenges to address.
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