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Crypto may experience financial crisis

Christy Goldsmith Romero of the US Commodity Futures Trading Commission (CFTC) says that crypto may face financial instability risks–and that the CFTC is fit to prevent such a crisis.

While there is growing interest from TradFi in crypto, firms should notify regulators of potential risks that may come, according to Christy Goldsmith Romero, a commissioner with the US Commodity Futures Trading Commission.

“Financial stability risk will increase and could rise to the level of systemic risk if, in the future, there are greater interconnections between the crypto industry and traditional finance players performing critical market functions,” the commissioner said Wednesday at an International Swaps and Derivatives Association conference in New York.

Goldsmith Romero, the lead commissioner of the CFTC’s technology advisory committee, is not the first regulator to argue that the crypto industry currently echoes some elements that have accumulated up to the 2008 global financial crisis. Goldsmith Romero also occupies one of the Democrat-appointed seats on the five-person commission that oversees derivatives trading. 

At this point in time, the public’s stance on crypto remains polarised. While it has uplifted those financially marginalised, the recent focus on crypto regulation can hinder financial freedom for those who enjoy privacy and security from a decentralised crypto industry.

“Cryptocurrency was supposed to break from the traditional financial system, and all of its fragility and vulnerabilities,” continues Goldsmith Romero. “However, this spring unregulated crypto markets revealed their vulnerabilities to similar financial stability risks as traditional finance, with parallel themes from the 2008 financial crisis.”

Goldsmith Romero then offered the CFTC as an answer for mitigating such potential risks, suggesting that congress can “[provide] additional authority to the CFTC”, with a “same risk, same regulatory outcome.” In such regulatory outcomes, according to Goldsmith Romero, rules on crypto would treat the industry just like other sectors in the finance industry and system.

As of writing, the CFTC is on the route to become the primary regulator in writing bills that will impose rules on crypto trading. The CFTC is poised to be given authority over the spot market – the markets where actual tokens are traded between investors.

Goldsmith Romero also has the intention to start monitoring and policing a wide range of digital assets trading, starting with proposing a new definition of “retail investors” in crypto. The new definition, according to Goldsmith Romero, would require further clarity in safety measures for non-professional investors who also participate in the markets.

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