FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
A regulator reviewing the unbacked crypto asset market notes that these assets, such as Bitcoin, generate no cash flows and are not a claim on any issuer or underlying asset. Which description of their valuation is most consistent with the IMF's view in the reading?
Unbacked crypto assets have no issuer liability, cash flows or reserve assets, so their prices are mostly driven by sentiment and speculation rather than fundamentals. That is why they are highly volatile and prone to boom-bust cycles, unlike stablecoins that claim reserves.
- ATheir value rests on a claim against reserve assets held by the issuer
- BTheir price is driven largely by sentiment and speculation because there is no intrinsic anchorCorrect
- CTheir price is anchored to the present value of future protocol fees paid to holders
- DTheir value is stabilised by a central bank acting as lender of last resort
Explanation
Unbacked crypto assets have no underlying claim or cash flow, so there is no fundamental anchor and prices are driven mainly by sentiment, speculation and network expectations. The reserve-claim option describes stablecoins, not unbacked assets. No central bank backstop exists.
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