Fed Governor Christopher Waller recently spoke on the importance of regulation of bitcoin and the broader cryptocurrency market emphasizing that it is not limited to protecting experienced investors, rather “it’s how to protect the rest of us.”
Speaking at a Conference on Cryptoassets and Financial Innovation in Zurich, Switzerland, the Federal Reserve board member explained that crypto’s explosive growth over the last five years was “a stretch of incredible growth.”
These in turn, according to Waller, led to mainstream recognition from both the public and the government.
By law or by practice, many crypto-related products and activities fall between the cracks of traditional legal and regulatory structures, outside the so-called ‘regulatory perimeter,” he stated. “In that environment, the normal backstops and safety nets of traditional finance do not necessarily or reliably apply.”
Governor Waller went on to stress that many investors currently operating within the space come with a mindset that “regulation isn’t just unnecessary, it’s counterproductive.”
New retail users, by definition, do not have crypto experience,” Waller said. “They don’t know how to independently buy a crypto asset, how to obtain and protect a private key, how to conduct trades on a DeFi protocol, or how to write a smart contract.”
The Federal Reserve exec pointed out the high volatility has brought fear and concerns for these newbie investors which he claims inherently weakens the ecosystem as attempts are made to socialize individual losses.
Citing the recent run on the Terra ecosystem, Waller argued that “everyday users were seeking restitution, and even experienced DeFi players were discussing ways to compensate retail investors.”
Fed Governor- “Regulation would prevent socialization of losses”
The top exec summarises why financial regulation is required (1) by financial intermediaries as a form of liability protection and (2) by the taxpayer to prevent the socialization of individual losses. It does not arise to protect sophisticated, experienced, well-informed investors.
Waller finally concluded his speech with the quote,
If we want to allow broad access to the crypto ecosystem, then 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.