Lael Brainard, vice chair of the US Federal Reserve (Fed), has told during a conference of the Bank of England that the cryptocurrency sector needs tighter regulation because the collapse of the digital asset market has exposed "serious vulnerabilities" in the industry, the Financial Times has reported.
According to her, due to the relatively small size of the market and the weak relationship with the classical economic system, cryptocurrencies do not yet pose a threat to financial stability.
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Moreover, she has added that at the same time, regulators must provide a regulatory framework to protect investors:
"While touted as a fundamental break from traditional finance, the crypto financial system turns out to be susceptible to the same risks that are all too familiar from traditional finance, such as leverage, settlement, opacity, and maturity and liquidity transformation. As we work to future-proof our financial stability agenda, it is important to ensure the regulatory perimeter encompasses crypto finance."
Brainard doubts Bitcoin is a hedge against inflation. The regulator's vice president has pointed out that cryptocurrencies are highly correlated with high-risk assets.
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Brainard has added regulators should pay special attention to stablecoins. According to her, the collapse of the Terra ecosystem is reminiscent of a classic example of a banking panic.