Cryptocurrencies need regulation as a “matter of urgency”, according to Bank of England deputy governor Sir Jon Cunliffe.
Crypto technologies do not pose a risk to financial stability at the moment, he said.
But there are “very good reasons” to think that this might not be the case for much longer, Sir Jon said in a speech.
He warned that a future cryptocurrency crash could spread throughout markets.
A significant drop in the value of crypto-assets, for example, to zero, could force investors who have taken on debt with brokers to find cash to pay them.
“Similarly, there is the risk of contagion,” he added. “A significant drop in crypto valuations could have a broader impact on investor risk sentiment, causing investors to sell other assets deemed risky and perceived to have a similar investor base.”
“The possibility of shocks being transmitted through the financial system is created by interconnectedness,” he added.
In the past year, crypto-assets have grown around 200% in value from just under $800bn (£580bn) to $2.3tn (£1.7tn).
While this is small in the context of the $250 trillion global financial system, the 2008 financial crisis was triggered by the subprime sector, which was valued at $1.2 trillion at the time, according to Sir John.
Most crypto-assets, such as Bitcoin, are not backed up by assets or commodities in the real world.
They are essentially strings of computer code that account for 95% of the $2.3tn. As a result, he claims, they are volatile.
According to Sir Jon, connections between cryptocurrencies and the traditional financial system are also growing as large investors, hedge funds, and banks become more involved.
“By effectively bringing the crypto world within the regulatory perimeter, we can help ensure that the potentially very large benefits of applying this technology to finance can flourish in a sustainable way,” he added.