- Federal Reserve Board of Governors member Christopher Waller recently explained that regulating the bitcoin and cryptocurrency markets is meant to “protect the rest of us.”
- Board members point out that for new investors the fear of volatile markets naturally weakens the ecosystem as users seek to socialize at the loss.
- The governor said the space is evolving from assets such as bitcoin that offer risky financial exposure to “providing an alternative means of payment.”
Federal Reserve Board of Governors member Christopher Waller said regulation of bitcoin and the broader cryptocurrency market is not intended to protect experienced investors in the space, but “it is to protect the rest of us.”
The governor explained that the industry experienced explosive growth over the past five years was “a stretch of incredible growth”. Waller points out that these remarkable levels of development garnered quick recognition from both the public and government. This highly publicized recognition of economic growth in the industry has led to a divergence from the likes of bitcoin, which is “to provide an alternative means of payment”, often referred to as “decentralized finance, or DeFi”. Is. Governor
“By law or practice, many crypto-related products and activities fall outside the so-called ‘regulatory perimeter, between the rifts of traditional legal and regulatory structures,’ Waller explained. “In that environment, the usual backstops and safety nets of traditional finance do not necessarily or reliably apply.”
Governor Waller explained that many investors are currently operating within the space scene regulation through the lens of “regulation is not only unnecessary, it is counterproductive”. Are only these experienced investors comfortable with the risk then regulation may not be necessary.
“New retail users, by definition, do not have the crypto experience,” Waller said. “They don’t know how to freely buy crypto assets, how to obtain and protect private keys, how to trade on the DeFi protocol, or write smart contracts.”
The governor continued to say that even experienced investors will sometimes “socialize loss” when the pain is too extraordinary, even for the most experienced investors. This attempt to socialize the loss was well documented as users of the Terra ecosystem began asking for restitution after the UST stablecoin crashed.
Concluding his thoughts, Waller said:
“If we want to allow broader access to the crypto ecosystem, the question is not about what experienced users of that ecosystem want – it is about whether the rest of the public is better or worse able to protect the ecosystem. For what you have to believe, you can’t program confidence.”
Waller made the remarks at a virtual event CC-hosted by the Swiss National Bank (SNB) and the Center for Innovative Finance (CIF) at the SNB-CIF Conference on Cryptoassets and Financial Innovation.