According to Christopher Waller, who is a member of the Federal Reserve Board of Governors, regulating the Bitcoin and the wider cryptocurrency market is not to safeguard the experienced investors but it is to protect the rest of us.
The governor described the industry’s explosive growth over the last five years as “a stretch of incredible growth” which resulted in recognition from both the public and the government.
According to the governor, this widely publicized recognition of economic growth in the industry has resulted in a shift away from bitcoin, which is meant to issue an alternative mode of payment, and favoring practices referred to as “decentralized finance, or DeFi.”
Many crypto-related products and activities, by law or by practice, fall between the gaps of established legal and regulatory institutions, outside the so-called ‘regulatory perimeter, Waller stated.
In that setting, traditional finance’s normal backstops and safety nets may not always or reliably apply.
Regulation is not just unnecessary, but it is Counterproductive according to the many investors who are currently operating within the space Governor Waller explains. If these experienced investors were convenient with the risks then regulation may not be required.
Waller stated that new retail users don’t have the required cryptocurrency experience and as a result, they are not aware of the following:
- The way to independently purchase a Crypto asset,
- Acquiring and safeguarding a private key,
- Conducting trades on a DeFi protocol,
- The method for writing a smart contract.
The governor went on to say that even experienced investors will look to “socialize losses” when the pain is too intense, even for the most seasoned investors.
This attempt at socializing losses was well documented as Terra ecosystem users started to seek restitution after the crash of the UST stablecoin.
Waller while concluding stated that if broad access to the crypto ecosystem is to be permitted, then it is not about the needs of the experienced users of that ecosystem it is about the confidence needed in the ecosystem’s safety by the rest of the public and it is noteworthy that confidence cannot be programmed.
Waller made the remarks at the SNB-CIF Conference on Cryptoassets and Financial Innovation, a virtual event co-hosted by the Swiss National Bank (SNB) and the Center for Innovative Finance (CIF).
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