This year’s turmoil in the digital assets market exposed and elevated the high level of interconnectedness between digital assets firms and traditional markets, according to the federal Office of Financial Research.

OFR Report: In the OFR’s 2023 annual report, it said stress in the digital assets ecosystem spotlighted the sector’s lack of transparency and governance issues, though spillover to the traditional financial system is isolated to a subset of institutions. If the crypto markets become more interconnected, it said, shocks could spread to the broader financial system and affect financial stability.

Basel Review: The Basel Committee separately said cryptoassets that use permissionless blockchains, such as Bitcoin and Ethereum, create risks that cannot be sufficiently mitigated, reflecting similar remarks from U.S. banking regulators earlier this year. In a summary of its upcoming policy initiatives, the Basel panel said it plans to issue a new consultation paper later this month that revisits its supervisory criteria for stablecoins.

ICBA View: ICBA has called on policymakers to ensure new policies directed at the crypto sector fully reflect its risks and to ensure protecting national security and implementing anti-crime measures are primary drivers of crypto policymaking and regulation.

More: Recent Main Street Matters posts from ICBA Senior Vice President of Digital Assets and Innovation Policy Brian Laverdure cover recent crypto collapses, the evolving regulatory environment for digital assets, and the policy debate over treating cryptoassets as securities or commodities.