The Vice President of the Federal Reserve today called for greater crypto regulation, noting that many investors have suffered significant losses lately.
on Friday speech At the Bank of England conference in London, US central bank governor Lyle Brainard said the crypto market is not yet large enough to pose a “systemic risk” to the traditional financial system.
But she added that now is the time to “ensure that crypto finance is included in the regulatory ambit.”
“We are closely monitoring the recent events where the risks in the system have crystallized and many crypto investors have suffered,” Brainard said. “Despite significant investor losses, the crypto financial system does not yet appear to be large enough or in line with the traditional financial system to pose a systemic risk.”
“This is the right time to establish which crypto activities are permitted for regulated entities and under what constraints so that spillovers in the core financial system remain well contained,” she said.
Brainard noted the decline of Bitcoin—the largest cryptocurrency by market cap—and is down 68.5% from its November 2021 all-time high of $69,044.77. The collapse of the blockchain network Terra,
Terra supporters tout the network as the “next big thing” — and, for a while, it was. The network at one time became the go-to place for DeFi to “degenerate” EthereumBuilt largely by the promise of huge returns on Terra’s flagship protocol, Anchor.
But then came the race, followed by a death spiral. As traders rushed to exit the anchor, Terra’s UST stablecoin could not withstand the selling pressure and lost its dollar peg. Algorithmic stablecoin’s sister token LUNA then fell to zero.
Brainard said today that “new technology and financial engineering cannot by itself convert risky assets into safer assets” and that crypto is susceptible to the same risks as those in the traditional financial world – such as leverage. He added that Terra’s demise was “reminiscent of classic runs throughout history.”
Brainard’s comments echo those of Bank of England this week: UK central bank Told The decline in value in the cryptocurrency market means that there is a need for stronger law enforcement and regulations. Without further oversight, the bank argued, crypto could pose a “systemic risk” to the global financial system in the future.
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