Fed governor explains who needs crypto regulation and why demand for it is growing

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Reg­u­la­tion is need­ed to open the cryp­to ecosys­tem to a larg­er pub­lic, Unit­ed States Fed­er­al Reserve Board Gov­er­nor Christo­pher Waller told an audi­ence at the SNB-CIF Con­fer­ence on Cryp­toas­sets and Finan­cial Inno­va­tion in Zurich, Switzer­land. Finan­cial inter­me­di­aries can help man­age risk for new cryp­to users, but can­not elim­i­nate it, Waller said, and new and fast-grow­ing finan­cial prod­ucts need pub­lic con­fi­dence to survive.

The bank­ing offi­cial used his­tor­i­cal exam­ples to show the rela­tion­ship between tech­ni­cal inno­va­tion, reg­u­la­tion and the amass­ing of for­tunes. “New tech­nol­o­gy — and a lack of clear rules — meant some new for­tunes were made, even as oth­ers were lost,” Waller said.

Expe­ri­enced investors know how to oper­ate in unreg­u­lat­ed mar­ket­places and may not need or want reg­u­la­tion, Waller con­tin­ued. He point­ed to a recent Fed sur­vey that showed that even with the explo­sive cryp­to-assets in recent years, only 12% of Amer­i­can adults own cryp­to, and 99% of them hold it for invest­ment purposes. 

Relat­ed: How does the Fed impact cryp­to? | Find out on The Mar­ket Report

Inter­me­di­aries in the finan­cial mar­ket may want reg­u­la­tion because new users who have neg­a­tive expe­ri­ences with cryp­to could enter into dis­putes with them. Waller explained: “When every­day investors start los­ing their life sav­ings, for no rea­son except want­i­ng to par­tic­i­pate in a hot mar­ket, demands for col­lec­tive action can mount quickly.”

Those demands can grow into the social­iza­tion of indi­vid­ual loss­es, such as calls to reim­burse small investors who have suf­fered loss­es in the col­lapse of the Ter­ra (LUNC; for­mer­ly, LUNA) ecosys­tem, the cen­tral banker rea­soned. That, in turn, leads to increased demand for reg­u­la­tion to pre­vent the sit­u­a­tion from reoccurring.

To allow broad access to the cryp­to ecosys­tem, Waller concluded:

“[…] the ques­tion isn’t about what expe­ri­enced users of that ecosys­tem want — it’s about what the rest of the pub­lic needs to have con­fi­dence in the ecosys­tem’s safe­ty, and for bet­ter or worse, you can’t pro­gram confidence.”

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