Crypto crash renews push for more investor protections
By Ephrat Livni
For some experienced cryptocurrency investors, last week’s crash was par for the course. “Markets are seasonal; crypto is no exception,” venture capital firm Andreessen Horowitz wrote philosophically in a new “state of crypto” report out Tuesday. “Summers give way to the chill of winter, and winter thaws in the heat of summer.”
But for officials in Washington contemplating new rules for a slew of novel financial products, taking the nosedive in stride is tough. Many are calling for quick action, though that may end up being the only thing they agree upon easily.
The Securities and Exchange Commission chair, Gary Gensler, for instance, speaking at a conference of Wall Street regulators in Washington on Monday, said crypto was “a highly speculative asset class” that left investors exposed to losses and fraud.
The Commodity Futures Trading Commission chair, Rostin Behnam, told CNBC that crypto is “causing some confusion and some chaos,” and said that his agency should take on more regulatory responsibility over digital assets.
The Consumer Financial Protection Bureau chair, Rohit Chopra, told Bloomberg that he thought there were many dangers for investors lurking in stablecoins — cryptocurrencies linked to assets like the dollar that are meant to hold a steady value but which last week proved problematic.
There is agreement on this much, at least. “The existing oversight is clearly inadequate,” said Salman Banaei, policy chief at the crypto company Uniswap Labs, who was formerly at the CFTC.
The SEC has proposed bringing exchanges and other firms that facilitate crypto trading under the same regulations that now govern stock markets. Gensler argues that most tokens should be registered as securities, which would mean disclosures for investors. Some lawmakers have also favored more reporting for crypto brokers for tax compliance.
As for stablecoins — the cryptocurrencies meant to be tied to a stable value asset like the dollar, some of which last week proved wobbly — a range of regulations may be needed. Stablecoins backed by traditional assets like cash and U.S. Treasurys could be regulated like banks, some say, with oversight possibly given to the Federal Deposit Insurance Corp., but that would still leave others out of the picture.
Algorithmic stablecoins — like TerraUSD, which plunged last week and relies on an algorithm and trader interest in a linked cryptocurrency, Luna, to maintain its value — would not be included. Some lawmakers say that’s the right approach because algorithmic stablecoins are not tied to the traditional financial system, and therefore present less of a risk of causing a meltdown. But with crypto markets and investors increasingly connected to the older system, others argue that such distinctions are moot.