Regulation is necessary to open up the cryptocurrency ecosystem to a broader public, US Federal Reserve Board Governor Christopher Waller told an audience at the SNB-CIF Conference on Crypto Assets and Financial Innovation in Zurich, Switzerland. Financial intermediaries can help manage risk for new cryptocurrency users, but they can’t eliminate it, Waller said, and new and fast-growing financial products need public trust to survive.
The banking official used historical examples to show the relationship between technical innovation, regulation and the accumulation of fortunes. “The new technology – and the lack of clear rules – meant that some new fortunes were made, while others were lost,” Waller said.
Seasoned investors know how to trade in unregulated markets and may not need or want regulation, Waller continued. He pointed a recent Fed survey showing that, even with the explosion of crypto assets in recent years, only 12% of US adults own cryptocurrencies, and 99% of them do so for investment purposes.
Financial market intermediaries might want regulation because new users who have negative experiences with crypto might get into disputes with them. Waller explained: “When everyday investors start losing their life savings, for no reason except wanting to participate in a popular market, class action lawsuits can mount rapidly.”
These demands can become the socialization of individual losses, such as claims for reimbursement to small investors who have suffered losses in the collapse of the Terra ecosystem (LUNC; formerly LUNA), reasoned the central banker. This, in turn, leads to a greater demand for regulation to prevent such a situation from happening again.
To allow broad access to the cryptocurrency ecosystem, Waller concluded:
“[…] The question is not what the experienced users of that ecosystem want, but what the rest of the public needs to have confidence in the security of the ecosystem, and for better or worse, trust cannot be programmed.”
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