A U.S. government report said virtual currency could threaten the financial system.

According to the Wall Street Journal on the 3rd (local time), the U.S. Financial Stability Oversight Committee (FSOC) said at a meeting presided over by Finance Minister Janet Yellen that the cryptocurrency industry is small but can change rapidly and accelerate potential system risks.

In a 120-page report, the FSOC Risk Panel wrote, “If this vulnerability remains the same while the scope of virtual asset activities and interrelationships with traditional financial systems increase rapidly, the financial stability risk of cryptocurrency assets could be serious.”

The report follows President Joe Biden’s executive order in March, which required a number of federal agencies to evaluate the risks and opportunities posed by virtual currency.

In the virtual currency industry, regulators hoped to look at virtual currency opportunities, but officials have warned of the risk of collapse caused by financial innovation without sufficient regulation.

“As we have painfully learned from history, proper regulatory innovation can create considerable confusion and harm the financial system and individuals,” Yellen said ahead of an anonymous vote on the distribution of the FSOC’s report.

The report highlighted several vulnerabilities in the cryptocurrency market. Among them, it included interrelationships that can quickly spread losses to the virtual currency ecosystem and a lot of borrowing funds that can accelerate industrial shocks.

The report also added, “In addition, prices may be affected by frequent fraud and market manipulation.”

Two months after President Biden’s executive order on virtual currency in March, the collapse of TerraUSD, so-called algorithmic currency, took place. Because of this, $40 billion disappeared from the virtual currency market. Since then, virtual currency hedge fund Three Arrow Capital has gone bankrupt, and a number of platforms with assets of individual investors have gone bankrupt together.

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