At a Bank of England conference last Friday, Federal Reserve Vice President Lael Brainard spoke on Bitcoin and cryptocurrencies, comparing the sector to traditional investments. Brainard argued that recent upheavals in cryptocurrency markets show the industry is subject to similar risks as conventional investing, underlining the need for regulation to protect itself from the allure of quick profit with no real basis. The comments probably refer to the collapse of bitcoin and other virtual currencies to follow, as well as other news such as the failure of Voyager Digital, the collapse of the Earth / Moon system, the liquidation of the Singapore-based cryptocurrency hedge fund Three Arrows Capital and the problems of Celsius to suspend customer withdrawals.
“The crypto financial system turns out to be susceptible to the same risks that are all too familiar from traditional finance – Brainard said – so now is the right time to ensure that similar risks are subject to similar regulatory outcomes and similar disclosure in order to help investors. to distinguish between genuine and responsible innovation and the false appeal of seemingly easy returns that obscure significant risk. “
His statements came the day after Fed Governor Christopher Waller also highlighted the risks of cryptocurrencies, saying the turmoil had not yet threatened major financial institutions.
“That doesn’t mean that if it was 10 times bigger it wouldn’t have had an impact,” Waller said in a discussion with the National Association for Business Economics. “It is important that the foundations for sound regulation of the crypto financial system are established now, before this ecosystem becomes so large or interconnected that it could jeopardize the stability of the financial system.”
Brainard talked about the crypto ecosystem, taking up the concepts expressed by Waller. He called it not yet so large or so interconnected with the traditional financial system, to represent a systemic risk.
These statements seem unanimous, in wanting to attribute the same characteristics between the traditional financial system and that of cryptocurrencies. The traditional system is experiencing heavy stress, due to inflation and the repetition of economic cycles, as also explained by Ray Dalio. However, the cryptocurrency system – with the exception of some scams that unfortunately happened but have nothing to do with decentralization – brings with it positive innovations that go in the direction of removing power from centralized systems, such as central banks, and probably for this very reason it is often heavily criticized by the representatives of the latter institutions.
