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Crypto Crash

by Hans Lipper

The Senate Banking Committee held a hearing on Tuesday titled “Crypto Crash” to discuss the need for tighter regulation and safeguards to protect investors in the crypto industry in the aftermath of last year’s market collapse. Lee Reiners, policy director at the Duke Financial Economics Center, testified that crypto has produced nothing of benefit in the 14 years since Bitcoin’s whitepaper was published. He recommended that banking agencies restrict the crypto industry from accessing the banking system and release information to the public exposing all of the ways that banks are exposed to crypto. Linda Jeng, a former member of the SEC CFTC, and Federal Reserve, was also present to testify and urged Congress to pass thoughtful comprehensive legislation that establishes a federal regulatory framework with digital assets. Senators Cynthia Lummis and Kirsten Gillibrand drafted bipartisan legislation last year to create basic standards for properly regulating and classifying digital assets, but it drew scrutiny from both regulators and Bitcoin bulls. Reiners suggested that banking agencies become more prescriptive about what crypto-related activities banks cannot engage in, including a rule against holding crypto on their balance sheets. He also argued that there is ample evidence of the harms crypto can cause, including hacks, scams, terrorist financing, sanctions evasion, and jeopardizing the nation’s climate goals.

The Senate Banking Committee hearing on Tuesday highlighted the need for tighter regulation and safeguards to protect investors in the crypto industry. Lee Reiners, policy director at the Duke Financial Economics Center, recommended that banking agencies restrict the crypto industry from accessing the banking system, and release information to the public exposing all of the ways that banks are exposed to crypto. He also suggested that agencies become more prescriptive about what crypto-related activities banks cannot engage in, including a rule against holding crypto on their balance sheets. Linda Jeng, a former member of the SEC CFTC, and Federal Reserve, urged Congress to pass thoughtful comprehensive legislation that establishes a federal regulatory framework with digital assets.

Reiners argued that there is ample evidence of the harms crypto can cause, including hacks, scams, terrorist financing, sanctions evasion, and jeopardizing the nation’s climate goals. He claimed that crypto’s “killer use case” has still not revealed itself after over a decade, and that most people invested in crypto simply because they thought they could sell it to someone else at a higher price in the future. Senators Cynthia Lummis and Kirsten Gillibrand drafted bipartisan legislation last year to create basic standards for properly regulating and classifying digital assets, but it drew scrutiny from both regulators and Bitcoin bulls.

The Senate Banking Committee hearing on Tuesday highlighted the need for tighter regulation and safeguards to protect investors in the crypto industry. It is clear that crypto has the potential to cause significant harm, and that banking agencies should take steps to restrict crypto from accessing the banking system and become more prescriptive about what crypto-related activities banks cannot engage in. It is also clear that Congress needs to pass thoughtful comprehensive legislation that establishes a federal regulatory framework with digital assets in order to protect investors and ensure the industry is properly regulated.

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