United States bank regulators’ posture on digital assets is increasingly one of “prove it” pressure.
This, as Federal Reserve Chairman Jerome Powell Tuesday (March 7) re-emphasized his earlier stern warnings around cryptocurrencies during his agency’s semi-annual monetary report to the U.S. Senate Banking Committee.
In today’s post-FTX landscape, nearly all of the key federal bureaus are decidedly wary of giving the crypto industry any onramps to the traditional financial sector.
Powell’s speech before Tuesday’s committee of lawmakers offered little in the way of a silver lining.
“We’ve seen just a remarkable set of events in the crypto space,” he said. “…We’re watching what’s been happening, and what we see is quite a lot of turmoil, we see fraud, we see a lack of transparency, we see run risk.”
Read more: Fed Reserve Chair Crypto Regulation Needed Before DeFi Joins With Banking
Powell was asked to address cryptocurrency issues several times during his testimony, which primarily centered around employment, consumer spending, manufacturing production, and inflation.
‘We Don’t Want to Stifle Innovation’
Powell pointed to multiple industry collapses beyond the FTX exchange and several high-profile instances of fraud to illustrate “that regulated financial institutions should be quite cautious in doing things in the crypto space.”
“We have to be open to the idea that — somewhere in there — there is technology that can be featured in productive innovation that makes people’s lives better … we don’t want to stifle innovation,” Powell told the committee members, adding that he would welcome Congress stepping in with a new “workable legal framework” for the crypto industry.
Powell also suggested that a place exists for stablecoins in the traditional financial sector, but cautioned that it would require “appropriate regulation,” and highlighted “real concerns” around “permissionless public blockchains, and the reason is that they’ve been so susceptible to fraud, to money laundering and all of those things.”
Crypto crime hit an all-time high of $20.6 billion last year, and that’s a “lower bound” estimate.
Over 40% of 2022’s crypto transaction volume flowed in some way through sanctioned entities — the exchanges and the individuals and services targeted by the Office of Foreign Assets Control (OFAC) — that lie behind hacking, ransomware, drug trafficking, money laundering and terrorist financing, underscoring the glaring inability, or unwillingness, of crypto’s current system to flag and stop illicit activity.
