This grace may not last long. Policy makers must act now to impose much needed rules on this market.
The problem areas are clear. At number one are stablecoins, digital tokens purported to be worth $1, used by speculators to gain leverage and hold funds between bets. At its peak, such a coin has amassed more than $160 billion of his money, with issuers investing it in assets ranging from corporate bonds to Bitcoin, but none at all. The danger is that a sudden loss of trust could trigger an exodus, as happened with the Terra stablecoin in May. More likely to be confused. For example, disruptions in markets where real businesses rely on payroll and working capital.
Another threat arises when commercial banks are exposed to cryptocurrencies either directly or through lending to companies and hedge funds. For example, if big banks were among the creditors of now bankrupt Celsius and Three Arrows Capital, the crypto meltdown could have done more widespread damage. Fortunately, regulators seem to avoid such consequences and remain vigilant, but have yet to adopt formal rules.
In addition, myriad digital tokens and exchanges (including the large exchanges operated by Coinbase and Crypto.com), for the most part, have traditional It does not face the same standards as assets and financial intermediaries. Thus, as regulators such as the Securities and Exchange Commission and the Commodity Futures Trading Commission struggle to figure out how to respond and who should be in charge of what, markets are open to hacking, manipulation, and so on. , self-dealing and outright fraud are rampant.
Ideally, Congress would impose some order. There are many proposed bills, some of which are good. One bipartisan bill would (wisely) require that stablecoins be backed by high-quality assets that are regularly disclosed and establish oversight of crypto tokens and exchanges. Complicating things by creating a new category of “subsidiary assets” for digital tokens, it includes questionable measures such as tax breaks for “miners” who process blockchain transactions. And with midterm elections looming, lawmakers are unlikely to move forward anytime soon.
Officials don’t have to wait for Congress. Bank regulators have the power to create restrictive charters for stablecoin issuers. Issuers who meet the required criteria, such as assets and governance, can receive privileges such as access to Federal Reserve accounts. Others may face heavy scrutiny and sanctions. Authorities may also adopt strict capital requirements. This ensures that exposure to cryptocurrencies is funded with capital that banks can afford to lose.
SEC and CFTC need to work together when it comes to tokens and exchanges. It hardly matters whether things are called securities or commodities, as long as some degree of transparency and accountability is established. To that end, former CFTC chairman Timothy Masad and Harvard Law School professor Howell Jackson have a promising proposal. These institutions should establish industry-funded bodies (similar to financial industry regulators) that set reasonable standards for all relevant crypto instruments. and institutions. Similar to stablecoin issuers, entities that fail to comply risk legal consequences.
The technology underlying cryptocurrencies may still be profitable, but the speculative frenzy surrounding it can still do a lot of damage. rarely gave a second chance to stop Don’t waste it.
Bloomberg Opinion Details:
• Crypto needs some SEC rules: Matt Levine
• Digital yuan may succeed, but cryptocurrencies are failing: Lionel Laurent
• No, crypto exchanges are different from stock exchanges: Aaron Brown
The editors are members of the Bloomberg Opinion Editorial Board.
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