One of the fallouts from the Federal Reserve’s period of monetary expansion during 2020-2021 could be related to the regulation of crypto-assets.
Crypto-asset pricing had been very uninteresting until the Federal Reserve began to flood the banking system with liquidity.
This was the case with what was happening in many other financial markets.
Well, the Fed saved the economy, at that time, from any serious economic disaster, but it generated many, many financial bubbles that it now has to deal with as the Fed reverses its actions.
As the Fed attempts to tighten monetary policy in order to combat the current rise in inflation, one by one we see adjustments taking place in the economy to deal with the monetary accumulation that has taken place. in various sectors of the financial world.
And, we find results that make many uncomfortable.
The initial wave of support for cryptoassets from libertarian-minded individuals has now receded somewhat.
Increasingly, as evidence mounts of the misuse or misapplication of the free market agenda, we see the other side of the argument taking more aggressive stances.
For example, Wall Street Journal columnist Greg Ip writes this morning about how “Crypto Meltdown Exposes Hollowness of its Libertarian Promise.”
Mr. Ip writes,
“unable to move the dollar, crypto has become just another asset without the guardrails of traditional markets.”
Additionally, the Financial Times lead op-ed, written by Jemima Kelly, states, in bold print, “There is a moral case against crypto.”
Ms. Kelly writes,
“It seems more appropriate to use the latest stock market crash as an opportunity to make the moral case against crypto. Because it’s not just that it shouldn’t be treated as a serious asset class; a bit of harmless fun.”
Thus, some of the weaknesses of the libertarian case came to light.
But, we must not overreact and go too far in the opposite direction.
Yes, the crypto markets have lost over $1 trillion in value over the past six months.
The price of one Bitcoin (BTC-USD) was just over $67,000 on November 10, 2021.
Today, the price is around $30,000, while it was below $26,000 a few days ago.
TerraUSD (UST-USD), a token whose price was supposed to remain pegged to the dollar, suddenly dropped, along with the coin (LUNA-USD) that was supposed to support it.
We have not fully experienced the full fallout of the recent collapse and await the further ramifications of the unregulated space.
Are the regulations coming?
Gary Gensler, Chairman of the Securities and Exchange Commission, has made it his mission to regulate these crypto-assets.
Mr. Gensler is building his case.
After testifying before the House Appropriations Committee hearing on Wednesday, he told reporters,
“I think a lot of these tokens will fail.”
“I fear that in crypto…there are a lot of hurt people, and that will undermine some of the confidence in the markets and the confidence in the broader markets.”
Mr. Gensler has his mission defined for him.
Others, like Rostin Behnam, chairman of the Commodity Futures Trading Commission, are on his side.
The pieces all fit together.
Earlier this month, the SEC said it plans to add 20 investigators and litigators to its dedicated Cryptocurrency and Cybersecurity Enforcement Unit, nearly double the size of the SEC. unity.
Still, Mr. Gensler feels that this is not close enough and that more will be added later.
Mr. Gensler and his predecessor, Jay Clayton, believe that most cryptocurrencies meet the legal definition of a security and should therefore be registered with the SEC,
“There is a way forward,” says Gensler.
Mr. Gensler is building that path. He’s getting more and more support for that effort these days, and the number of defenders seems to be growing.
For me, this battle will grow and grow.
I’m leaning towards less regulation than more. But, I believe that one should not simply dismiss the need for regulation out of pure philosophical thought.
People cheat. People cut corners. People have incomplete knowledge. Bad things happen. Markets, in general, seem to need some sort of watchdog.
This is common sense. In this, I am rather pragmatic. And, like Cass Sunstein, I believe that market regulation must be done gradually. That we should work in “boosts”.
The problem is, too often, we wait too long and major problems arise.
In order to put things right, we have to make big moves.
These major adjustments tend to create their own “unintended consequences”.
And, thus, more problems are introduced into the picture.
Markets must be regulated.
My old libertarian days are behind me.
We have a major fix in progress. Many, many people hurt themselves in the adjustment.
We need to get Mr. Gensler and others to act to bring more regulation to the crypto-asset space to avoid even more pain.
The settlement is coming. Let’s go.