This Economist Gives 5 Reasons Why Crypto Shouldn’t Be Regulated

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By Victor Reklaitis

Professor Brandeis: ‘I think the strongest argument against regulation is to confer legitimacy’

While the collapse of cryptocurrency exchange FTX has prompted many US lawmakers to call for new regulations on the crypto industry, an economist offered a different approach on Tuesday.

Stephen Cecchetti, an economist and professor at Brandeis International Business School, argued against federal regulation of crypto in a debate on the topic hosted by the Brookings Institution, a Washington, D.C.-based think tank He gave five main reasons for his point of view, starting with one related to a major video game from Activision Blizzard (ATVI).

“First, and I think the strongest argument against regulation is to confer legitimacy,” Cecchetti said.

“I think a lot of this stuff looks like a video game, and so if I look at an analog, World of Warcraft has 120 million players and there’s an economy in there. Fortunately, no federal financial regulator has responsibility to oversee World of Warcraft. And while there’s money involved, I don’t think any of us would call on them to oversee massive online multiplayer games. Like World of Warcraft, Crypto, in my view, does nothing to sustain the real economy, so legitimizing it will simply drain creative resources from productive activities.”

Second, Cecchetti said, the United States already has laws and enforcement mechanisms in place to combat “fraud, theft, and facilitation of criminal activity.”

“It is essential that prosecutors address the misconduct which is, in my view, the defining characteristic of the crypto world. They should do so by aggressively enforcing existing laws and, where appropriate, prosecuting celebrities promoting this stuff,” he said. said.

Third, Professor Brandeis argued that “new, lightweight rules for the crypto world would fuel the migration of financial activity from traditional finance to the less regulated but newly legitimized crypto world.”

Fourth, he said that while some people argue that crypto regulation will promote financial innovation, he doesn’t see it that way.

“As long as regulators encourage competition, there’s nothing stopping traditional intermediaries from investing in new technologies, which they do all the time. And those technologies reduce costs and improve access,” Cecchetti said, who previously worked as the head of the currency department. and the economic department of the Bank for International Settlements, which is often described as a central bank for central banks.

Finally, Cecchetti raised concerns about banks (KBE) plunging into virtual currencies.

“Fifth and last, legitimizing crypto will encourage banks to buy crypto-assets directly and lend them as collateral. Imagine where we would be if leveraged financial intermediaries held crypto in November 2021 before the fall in value,” he said. said.

He also talked about keeping crypto on another planet, so to speak.

“If virtually all transactions in the crypto world remained inside the crypto world with no ties to the real economy, it would be like all of this happening on Mars, and it wouldn’t affect the financial system. traditional,” he said. .

“That should be our goal, so my conclusion is that creating a separate federal financial regulatory regime for crypto would make the system less, not more, secure.”

Peter Conti-Brown, a financial historian, legal expert and professor at the Wharton School at the University of Pennsylvania, clashed with Cecchetti during Tuesday’s debate, arguing that federal regulators have a lot more work to do with crypto. .

“The last point Steve agrees with – it’s not time for us to have a crypto-specific regulatory regime. But that’s not the debate. The debate is whether we should regulate cryptography, and I’m going to playfully suggest that Steve conceded the debate,” Conti-Brown said after hearing Cecchetti’s five points.

“Steve, you said we should aggressively enforce existing laws. The problem is what laws will be enforced against crypto, and there are legal and definitional issues that aren’t trivial.”

Democratic Senator Elizabeth Warren of Massachusetts is among lawmakers who have called for tougher crypto rules in recent weeks.

Related: CFTC Chief Calls for ‘Comprehensive’ Rules to Avoid Another FTX Meltdown

And See: “Crypto Is A Snake Garden,” Says Democratic Congressman As Congress Investigates FTX Fallout

Further: “FTX and cryptocurrencies are not the same thing,” says the Republican advocate. “The code has committed no crime.”

-Victor Reklaitis

(END) Dow Jones Newswire

24-12-22 1255ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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