The Financial Stability Board (FSB) will propose global rules for cryptocurrencies after it warned that crypto poses risks to key parts of traditional finance.
"The FSB will report to the G20 finance ministers and central bank governors in October on regulatory and supervisory approaches to stablecoins and other crypto-assets," the FSB said in a statement.
The FSB is an international body that monitors and makes recommendations about the global financial system.
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The global watchdog has so far limited itself to monitoring the crypto sector, saying it did not pose a systemic risk. But now it is calling for an effective regulatory framework to ensure crypto-asset activities posing risks similar to traditional financial activities are subject to the same rules.
"The failure of a market player, in addition to imposing potentially large losses on investors and threatening market confidence arising from crystallisation of conduct risks, can also quickly transmit risks to other parts of the crypto-asset ecosystem," the FSB said.
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“Crypto-assets and markets must be subject to effective regulation and oversight commensurate to the risks they pose, both at the domestic and international level.”
The market capitalisation of the sector has tumbled to about $900bn (£753.9bn) from a peak of almost $3tn late last year.
The value of bitcoin (BTC-USD), the largest cryptocurrency, has slumped some 70% since its November record of $69,000 and was trading at around the $20,000 mark on Monday.
The ongoing crypto meltdown has had adverse effects on nearly all aspects of the sector, with leading crypto exchanges, including Celsius, freezing withdrawals and trading of assets for customers.
Several platforms, such as Voyager Digital and Three Arrows Capital (3AC), have also filed for bankruptcy as companies are going through severe cost-cutting procedures, primarily by laying off employees.
In a bid to rein in the “wild west'' of crypto assets, the European Union (EU) has announced rules will require that cryptocurrency firms provide information regarding the environmental impact of their assets.
Last June, Bank of England governor Andrew Bailey again warned crypto investors that they could lose all their money as he said unbacked crypto assets have no intrinsic value.
"If you want to invest in these assets, okay, but be prepared to lose all your money," Bailey warned.
He added: "People may still want to buy them because they have extrinsic value ... people value things for personal reasons. But they don't have intrinsic value.
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The Bank for International settlements (BIS), an association of the world’s major central banks, said in a report that recent collapses of the TerraUSD (UST-USD) and luna (LUNA1-USD) 'stablecoins', coupled with market turmoil, have demonstrated crypto’s volatility.
Stablecoins attempt to “piggyback on the stability of real money issued by central banks,” the report said.
The money stolen from crypto frauds has also increased over the past year even as a crash has seen cryptocurrency prices plummet.
Crypto fraudsters stole 58% more money in the past 12 months with victims in the UK generally losing £36,250 per fraud, a report by cyber security company NordVPN revealed.
Total losses from crypto fraud were over £226m in the year to May 2022, compared with over £142.9m in the previous 12 months.