Cryptocurrency: The modern wild west
“Tombstone” is an iconic Western movie. The cinematography is excellent, and Val Kilmer’s Oscar-nominated performance made the film a hit – but the story told by the movie is rooted in truth. While the Wild West was full of promises of riches and new opportunities, it was not exactly a safe place to be. The same is true of cryptocurrency. Without regulation and safeguards, cryptocurrency has become a nest for exploitation and has evaporated billions of consumers’ hard-earned dollars.
As crypto gained popularity, investors and consumers were lured into an unregulated financial space on the promise of big returns. However, they weren’t told about the massive risks, including those that came to the forefront when FTX collapsed: the Commodity Futures Trading Commission estimated that $8 billion of client money was lost in that event alone.
Plus, we have another example of the risk and uncertainty within the crypto market: Signature Bank’s failure. Following the Silicon Valley Bank collapse – the second largest bank failure in U.S. history – Signature’s depositors followed suit by causing a run on the bank out of concerns with the institution’s ties to the crypto industry. This wasn’t just one digital asset. This was the collapse of a bank with $110 billion in assets concentrated heavily in unregulated cryptocurrency.
While NAFCU sees the opportunities that digital assets provide, it’s obvious that America needs a clear regulatory framework to protect everyone involved. NAFCU has ardently argued for this clarity and the protections it would provide. More specifically, we’ve advocated for one that preserves credit unions’ ability to compete with other financial institutions and companies on a level playing field. With proper rules of the road, crypto can create efficiencies, reduce operating costs for credit unions, facilitate payments, enhance regulatory compliance, and reduce human error and fraud.
In January, I sat down with the Chairman of the House Financial Services Committee, Representative Patrick McHenry, R-N.C. When I asked about his plans for regulating crypto, he made the point that America doesn’t even have a functional definition of a digital asset. It’s hard to regulate something that isn’t even defined. However, Chairman McHenry and other lawmakers have been crafting bills that would address this and the lack of regulation in the crypto space.
There’s a long way to go in properly solving crypto concerns, but it’s important that we learn from past failures. We must protect consumers and their hard-earned money by creating a clear and fair framework. This framework must have safety and soundness standards that bring crypto firms in line with federally insured depository institutions, like credit unions. If the proper safeguards aren’t put in place, consumers will continue to feel the consequences. A study by the Federal Reserve found that unbanked Americans were more likely to invest in crypto, meaning the risks of this unregulated space hurt those who can afford it the least.
Eventually, the U.S. was able to wrangle in the Wild West to become a safe place for Americans to pursue the opportunities it provided, and ultimately thrive. Today, we need to do the same with crypto. We must have a clear regulatory framework that is fairly applied across the financial space. We must protect consumers and financial institutions while encouraging innovation.
NAFCU will continue to press Congress for proper regulation of crypto. Even before legislation hits the House or Senate floors, we’ll work to protect the credit union industry. It’s our mission to ensure you have a legislative and regulatory environment that allows you to grow, innovate, and compete so, in turn, your members achieve the financial independence they deserve.