WASHINGTON — Cryptocurrency investors lost hundreds of billions of dollars in the past week amid sales of digital assets and other risky investments.
The crash is a moment for crypto critics, who have said the industry needs tighter regulation to protect consumers. Posted by some clear investors Disappointing message on reddit About to lose your life savings.
“We have an unregulated system in which people speculate a lot on things they don’t really understand,” said Todd Phillips, an expert in financial regulation at the Liberal Center for American Progress. “And we’re seeing a huge market correction that is hurting a lot of people.”
Sen. Elizabeth Warren (D-Mass.) called the crash “a reminder of what happens in an unregulated market, where there’s a lot of money floating around, no one has any transparency, and there’s no way to ensure There are no rules that consumers are protected.”
Even Crypto Booster acknowledged the need for closer supervision of the industry. Jake Chervinsky, head of policy for the Blockchain Association, the industry’s leading lobbying group in Washington, acknowledged on twitter That past week was “one of the most painful weeks in crypto history” and supported Congress’s move.
But what the reform looks like is an open question, as many lawmakers are unfamiliar with crypto and its associated jargon – and many members who know the lingo sound like they want to engage the industry.
Cryptocurrencies are not actually currencies, although their proponents say they may someday be widely used in commerce. For now, they are mainly digital assets used for speculative investments that are based on blockchain technology. Instead of going through an intermediary such as a bank, blockchain technology works by connecting a peer network of computers.
This month’s sell-off – that saw the industry net worth The fall last week from $1.8 trillion to $1.1 trillion was all the more notable as it involved the failure of the so-called stablecoin. Keeping a one-to-one ratio to the value of a dollar, stable coins are considered less volatile. But one stablecoin called Terra collapsed completely, and another one called Tether lost its peg, as timid investors sold their holdings amid an apparent crisis of confidence to be able to hold on to its value. .
The Biden administration has said that only insured depository institutions such as banks should be able to issue stablecoins rather than random tech companies. Terra was created by the South Korean company TerraForm Labs.
“They present the same kind of risk we’ve known about running a bank for centuries,” Treasury Secretary Janet Yellen told House lawmakers during a hearing on Thursday. “They are assets that guarantee conversion to dollars at will on a 1-for-1 basis.”
Banks are required to keep assets in reserve in case of unexpected demand from depositors, and the federal government insures deposits up to a certain amount. Terra saw exactly the same run as federal banking regulations designed to circumvent.
Chervinsky said he supports the more permissive proposals of Representatives Josh Gottheimer (D.N.J.) and Sen. Pat Tomei (R-Pa.) that would allow non-banks to issue stablecoins.
Tommy and other Republicans, such as Rep. Patrick McHenry (RN.C.), insisted that not all stablecoins are equal. Terra was backed by an algorithm rather than an actual reserve asset.
“It strikes me as quite possible that Terra’s design is fundamentally untenable,” Tommy told HuffPost.
Toomey and Gottheimer represent a bipartisan consensus among the handful of crypto enthusiasts on the Hill that the new law should shield rather than crack down on the industry. In addition to its stablecoin bill, Gottheimer has co-sponsored legislation that would exempt crypto tokens from securities laws.
The Securities and Exchange Commission has brought dozens of enforcement actions against digital asset issuers, prompting complaints of “regulation through enforcement” from industry players and their supporters in Congress.
At the same time, Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (DN.Y.) are drafting a more comprehensive bill that would also regulate stablecoins and other tokens. For example, crypto developers raising money through “initial coin offerings” must register with the SEC, like any company that sells stock to the public.
Loomis said the bill would drop sometime this month. She said that if she and Gillibrand’s imagination had rules in place, the accident wouldn’t have happened this month.
Loomis and Tommy are the only senators with crypto assets, according to a review of disclosure forms by Wall Street Journal, Loomis said that if she hadn’t been a senator, she would have gone out and bought more bitcoin in the wake of last week’s drop.
“You can buy it at a discount now,” she said.
Phillips has argued that the existing banking and securities laws, which have been on the books since the immediate aftermath of the great Wall Street crash of 1929, already cover much of what is happening in the crypto industry.
Securities laws require firms to disclose basic details about their business to potential investors; Some crypto projects do not even reveal the names of the people behind them.
“Whatever it is is covered by these laws,” Phillips said. “It’s just that the laws weren’t being followed.”
Igor Bobik contributed reporting.