KUALA LUMPUR (Feb 20): S&P Global Ratings said a drop in the market value of cryptocurrencies would not have a significant impact on financial markets for now, as it believes cryptocurrencies will need some regulation and guidance before they can play a bigger role.

"We believe that the characteristics of a cryptocurrency, in its current version, makes it more like a speculative instrument that, if its market value were to collapse, would not disrupt global financial stability," the ratings agency said in a statement today.

It said this after noting the significant amount of attention the digital assets have garnered from the market over the past 12 months, and how, being independent from central banks, the risk for them infiltrating the traditional financial systems and exposing them to a possible bubble burst have been raising eyebrows at regulators. 

“For now, a meaningful drop in cryptocurrencies’ market value would be just a ripple across the financial services industry, still too small to disturb stability or affect the creditworthiness of banks we rate,” said S&P Global Ratings financial institutions sector lead Dr Mohamed Damak.

The ratings agency said retail investors would be the first to bear the brunt, in the event of a collapse in market value at this point. Rated banks, on the other hand, should be largely insulated, due to their limited exposure to cryptocurrencies, the statement said.

If cryptocurrencies become an asset class, the impact on financial services firms will be more gradual, S&P Global Ratings added.

"We believe that the future success of cryptocurrencies will largely depend on the coordinated approach of global regulators and policymakers to regulate and enhance market participants' confidence in these instruments," Damak said.

Meanwhile, he said cryptocurrencies' underlying blockchain technology could be a positive disrupter of various financial value-chains and if widely adopted, could have a meaningful and lasting impact on the celerity, traceability and cost of financial transactions.

"The financial market infrastructure segment might also see benefit from cryptocurrencies and blockchain through the launch of new income-generating products, such as futures or exchanges based on cryptocurrencies, or the replacement of existing systems by new ones based on blockchain," the ratings agency added.