Cryptocurrencies will not have a significant impact on global financial stability if their values were to “collapse”, ratings agency S&P said.

The value of Bitcoin, the most valuable and popular cryptocurrency, had increased to record highs in 2017 before suddenly starting to fall by mid-December, on fears of a potential regulatory crackdown in many parts of the world.

Earlier this month, some banks in the United States and United Kingdom banned the use of credit cards to buy cryptocurrencies, while India announced plans to make the virtual currencies illegal within its payment system, according to Reuters.

“We think that retail investors would be the first to bear the brunt in the event of a collapse in their market value. We expect banks rated by S&P Global Ratings to be largely insulated, given that their direct or indirect exposure to cryptocurrencies appears to remain limited,” the S&P Global report said.

“If cryptocurrencies become an asset class, the impact on financial services firms will be more gradual,” added the report that was issued on Monday.

The report said the future of the virtual currencies “will depend on the coordinated approach of global regulators and policymakers”. It said the support of regulators and policy makers could strengthen cryptocurrencies’ operations. It also added that if cryptocurrencies were to be more widely adopted as decentralised currencies they could affect central banks’ ability to control money supply.

Globally, some regulators such as the United States’ Commodity Futures Trading Commission (CFTC) have issued some guidelines for public trading in cryptocurrencies’ derivatives, according to the CFTC website.

In the United Arab Emirates (UAE), Dubai Multi Commodities Centre announced last week it will start issuing licences to allow firms trading in cryptocommodities, including currencies, to operate from its free zone and the regulator of Abu Dhabi's international financial centre said it could create rules for cryptocurrency exchanges.

A top official in the UAE-based banking group Emirates NBD has said on Monday that he expects the Gulf Cooperation Council (GCC) countries will come up with a regulatory framework for cryptocurrencies “very soon”.

For Zawya’s special coverage on cryptocurrencies, click here.

(Writing by Yasmine Saleh; Editing by Michael Fahy)

(Yasmine.saleh@thomsonreuters.com)

Our Standards: The Thomson Reuters Trust Principles

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here

© ZAWYA 2018