Cryptocurrencies could be the reason of the next financial crisis if they become a systemic risk to the financial system, Garrick Hileman, an economic historian at the University of Cambridge, said.
According to him, a growing number of banks and financial companies are expressing interest in cryptocurrencies. But, becoming systemically important, in the case of rapid changes, they can turn into risky assets.
“To date, there have not been enough people who hold cryptocurrencies or institutions that own them, or enough credit or leverage used. Having said that, I can imagine scenarios — although I am not predicting this — where they do become systemically important," Hileman said.
Bitcoin has risen over 1,000% against the dollar so far this year, catalyzing interest and concern from investors and financial managers. The EU intends to combat bitcoin as there is high probability of it being used to facilitate financial crimes and launder money.
At the same time, the cryptocurrency’s crash could trigger another financial crisis. Hileman notes that more hedge funds come into the space and new investments such as bitcoin futures emerge.
However, a survey published by the Centre for Macroeconomics found that cryptocurrencies do not yet pose such a risk, because they are "too small and too detached from other financial markets."
But Hileman highlights that integration with traditional financial markets is "starting to happen." So chances of a crisis because of bitcoin, ethereum, and other altcoins are quite real.