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US central bankers explain the need for crypto regulation

 


At the SNB-CIF Conference on Cryptoassets and Financial Innovation in Zurich, Christopher Waller, a governor from the Governing Board of the US Federal Reserve, emphasized that the crypto industry needs to be regulated so that it can achieve the long-awaited suitability for the masses. Financial intermediaries could reduce the risks for crypto investors, but never completely eliminate them. However, innovative financial products inevitably need the trust of users in order to be able to establish themselves.


To support his argument, the central banker refers to historical comparisons in the interplay between innovation, regulation and value creation. "New technology - and the lack of clear rules - has usually led to new fortunes being created, but many existing ones being destroyed," Waller points out .


While experienced investors know how to behave in unregulated markets and may not want any regulation at all, without regulation there is still a clear lack of trust from the general public. In this regard, Waller refers to a current study by the "Federal Reserve", which proves that only 12% of Americans own cryptocurrencies, with 99% of them handling them for investment reasons.


For financial intermediaries, on the other hand, regulation is desirable because otherwise they run the risk of being held liable by inexperienced crypto investors. As the central banker explains: "If small investors lose their savings just because they want to be part of a hyped market, then the mood could quickly change."


This in turn could lead to demands that losses be borne by the community, as happened recently in the Terra (LUNA) case, because after many crypto investors suffered massive financial damage from the crash of the project, the pressure quickly grew that small investors receive compensation payments. In order to prevent such situations in advance, effective regulation is needed , says Waller.


Finally, the Fed Governor summarizes:

"It's not about what the seasoned crypto investors need, it's about what the general public needs to gain trust in the ecosystem, because trust is ultimately not programmable."

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