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FED VICE PRESIDENT: CRYPTO ECOSYSTEM NEEDS TO BE REGULATED!



 Lael Brainard on cryptocurrencies

On Friday, July 8th, the Vice Chair of the US Federal Reserve spoke at a Bank of England conference on cryptocurrencies and decentralized finance. She emphasized some problems of the still young market environment. Because of the high volatility when considering the dollar exchange rate of a cryptocurrency, easy handling is not possible.


She sees great dangers in the areas of liquidity and leverage trading in particular. In fact, these are no different from the dangers inherent in traditional finance. In addition, she also emphasized the ability that cryptocurrencies and digital innovations can bring great efficiency to the market, thereby saving costs and time in large parts. In fact, she does not go into the actual innovation of the blockchain: decentralized account management without third parties.

In the current bear market, many projects go bankrupt. In the bull market, these were often inflated too much without actually thinking long-term. Terra (LUNA) and Celsius are probably among the biggest contenders on the list right now. The danger for private investors is very high with these projects, which is why regulation should take place according to Brainard. Because the small investors should be protected.


Regarding the crypto ecosystem, Lael Brainard explained :

Future financial resilience will be greatly enhanced if we ensure that the regulatory framework encompasses the crypto financial system and reflects the principle of “same risk, same disclosure, same regulatory outcome”. Especially with a CBDC this could be solved.

In Asia, CBDC has been the new standard for over a year - Europe wants to start with its CBDC in 2023. Many central banks around the world are currently racing to see how a CBDC could work in a meaningful way for the respective country or monetary system. The USA with the Fed also want to switch to a digital alternative in the long term. 


Because this alternative gives the central banks significantly more power and opportunities to control payment transactions and pursue a new monetary policy. As soon as this CBDC was introduced, the state could have significantly more influence on our lives than is otherwise only known from authoritarian systems. At the same time, the developments surrounding the CBDC seem to be causing more and more regulatory restrictions for cryptocurrencies as well.

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