As the cryptocurrency industry scored massive electoral wins in November and skyrocketing crypto prices currently push the global valuation to more than $3 trillion, federal regulators have issued warnings about the nascent industry’s potential to cause widespread disruptions to traditional banking and financial markets.
The reports, which highlight crypto’s volatility, lack of regulations, and growing ties to traditional markets, echo alerts issued about the subprime mortgage industry before the 2008 financial crisis.
“I think you could sort of look at this . . . as a signpost for the future,” said Mark Hays, associate director for cryptocurrency and financial technology at the consumer advocate group Americans for Financial Reform. “If things go wrong, a report like this is one of those things that you look back on to say, ‘What were the early warning signs?’”
The two reports, both from nonpartisan federal agencies, caution about the possible negative ramifications if crypto becomes more entwined with traditional financial institutions, among other concerns. One report also warns about the consequences of an increasing number of consumers taking out loans to finance risky cryptocurrency bets — a process called “leveraged trading.”
Cryptocurrencies are a digital currency that are not associated with any governments. That lack of government control and regulation can lead to their volatility, which has already caused some consumers to lose their life savings during previous crypto crashes.
In a new report from Federal Reserve Bank of New York, a branch of the US central bank tasked with issuing interest rates, supervising private banks, and other responsibilities, economists warned that cryptocurrencies’…
Auteur: Freddy Brewster
