The ‘snake oil’ crypto problem may thwart ambitions

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No easy path for crypto to follow. Not for use in payments, it seems, and not for commerce.

Regulatory screws, as you might call them, are set to tighten even further on bitcoin and other digital offerings, no matter where they are used.

And the pressure can be felt, more keenly and immediately, by the traders / speculators who have brewed these cryptos in the markets, causing the prices to go up and down by several percentage points per day, even in a matter of minutes.

As Senator Elizabeth Warren, Democrat of Massachusetts, told CNBC on Wednesday, July 28, the day after a hearing on the crypto industry, that crypto regulation could have a precedent compared to drug regulation. in the past.

As long as people can sell snake oil, she said, people haven’t invested in making drugs that have helped people. But with the advent of the Food and Drug Administration (FDA), she said, businesses and individuals have turned their attention to developing what has become a much better market that has helped the world in its path. together.

Speaking directly about cryptos and regulations in particular, she said, I don’t want to wait until a lot of small investors and a lot of small traders are wiped out completely. I think the rules of the road and a beat cop will let bad actors know someone is watching. During the interview, she specifically emphasized the pumping and emptying systems.

Who benefits from the lack of rules? she asked rhetorically. It’s the big ones.

Asked by CNBC what she thought of the potential of cryptos to disrupt traditional financial services, Warren said digital currencies are a way to reach unbanked or underbanked people who are paying way too much to cash in their money. paycheck or pay their utility bills or hire them. Central bank digital currencies (CBDCs) would be an inexpensive way to provide access to banking services, she said.

Warrens’ comments came a day after sending a letter to U.S. Treasury Secretary Janet Yellen detailing concerns about crypto risks that could be addressed by the Yellens Financial Stability Oversight Council. These concerns include the risks to banks if cryptocurrency companies are able to obtain banking charters without being able to adhere to the same rules of safety and soundness that traditional banks are subject to. Stable coins also pose risks, she said, as they are largely unregulated and can be risky for financial stability if these coins are leaked with the aim of liquidating them in large quantities. Cyber ​​attacks are also a constant threat, according to Warrens’ missive.

Existential questions

This letter came in tandem with a hearing on Capitol Hill Tuesday (July 27) titled Cryptocurrencies: What Are They For? Rather, according to the testimony of Jerry Brito, executive director of the Coin Center, bitcoin is classified more precisely as a commodity. Therefore, regulations that apply to securities and securities markets should not apply to bitcoin and similar cryptocurrencies.

Here then, between Warren’s comments and the audience commentary are some of the crucial existential questions surrounding the cryptos themselves: what they are, how they should be regulated, and even who should own them.

Over the past few weeks and months, as shown in this space, the Treasury Department and others have circled cryptos, while stablecoins have also gained more attention. Nothing acts as a deterrent like legal action, so the payment ambitions of bitcoin et al may face headwinds until the trading and exchange components are effectively protected. But then again, there is much that the CBDCs can do to quell these commercial ambitions. Time will tell, but until then a lot is at stake.

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