Yellen Says FTX Collapse Shows Weaknesses of Entire Crypto Sector — Fed’s Brainard Pushes for Strong Regulation

U.S. Treasury Secretary Janet Yellen and Federal Reserve Vice Chair Lael Brainard have stressed the need for strong crypto regulation. Yellen said the FTX collapse shows “the weaknesses” of the entire crypto sector while Brainard cautioned that failures from one platform are “spilling over into elsewhere.”

U.S. Treasury Secretary Janet Yellen shared her concerns regarding the implosion of cryptocurrency exchange FTX Saturday in an interview with Bloomberg. She stressed that FTX’s failure has reinforced her view that the crypto market requires “very careful regulation,” emphasizing that “It shows the weaknesses of this entire sector.”

Yellen compared crypto markets to developed financial markets with better investor protection rules, adding:

In other regulated exchanges, you would have segregation of customer assets. The notion you could use the deposits of customers of an exchange and lend them to a separate enterprise that you control to do leveraged, risky investments — that wouldn’t be something that’s allowed.

“At least it’s not deeply integrated with our banking sector and, at this point, doesn’t pose broader threats to financial stability,” she continued, warning that the FTX debacle could have been worse if digital assets were more embedded in the financial system.

Federal Reserve Vice Chair Lael Brainard similarly stressed the importance of strong crypto regulation in an interview with Bloomberg Monday.

She noted that the crypto sector has proven to be susceptible to the same risks as traditional finance and should be subject to the same rules. Reiterating her long-held view that crypto finance needs strong regulation, Brainard opined:

It’s really concerning to see that retail investors are really getting hurt by these losses.

The Federal Reserve vice chair added: “Despite a lot of hype … you heard a lot about how decentralized these markets are … it turns out they are highly concentrated, highly interconnected, you are just seeing a domino effect, failures from one platform spilling over into elsewhere.” She concluded:

It reinforces I think this need to make sure that crypto finance, because it is no different than traditional finance in the risks that it exposes, needs to be under the regulatory perimeter … There need to be strong regulatory guardrails.

Following the bankruptcy filing of FTX, a growing number of lawmakers are calling for stricter crypto regulation. The chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, has warned that the crypto field is “significantly non-compliant.” Last week, the White House and several U.S. senators also called for proper crypto oversight.

What do you think about the comments by Treasury Secretary Janet Yellen and Federal Reserve Vice Chair Lael Brainard? Let us know in the comments section below.