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Crypto Market Resembles the 2008 Financial Crisis, Argues CFTC Commissioner

Christie Goldsmith Romero of the Commodities and Futures Trading Commission (CFTC) called for urgent regulation of crypto markets on Tuesday. Her previous experience at the SEC and Treasury leads her to believe that crypto today shares some similarities to 2008.

Comparing Crises

During an interview with Axios, the commissioner noted that crypto’s first similarity to 2008 is its large, unregulated market.

The crash 14 years ago was prominent by “shadow banks” – institutions that operated like banks, but without traditional regulations. They were famous for extending credit to people that hardly had the necessary qualifications, and simultaneously creating a large housing bubble.

Certain institutions within the crypto space are operating in a similar manner. On Tuesday, Securities and Exchange Commission Chairman Gary Gensler called out crypto lending platforms offering unrealistic returns to depositors. He even directly compared such institutions to banks, while urging the public to be wary of them.

One such platform – Celsius – had to freeze withdrawals from their platform due to a liquidity crisis. It is now desperately defending some of its loans used to generate high yield by depositing more crypto collateral.

The second comparison made by the commissioner is crypto’s tight correlation to tech stocks and equities. Data from Arcane research in May showed that crypto’s correlation to the NASDAQ ran as high as 0.82.

Despite Romero’s concerns, the CFTC currently lacks oversight of crypto spot markets – just derivatives markets. However, a recent senate bill would put oversight of Bitcoin and Ether directly under the CFTC’s control.

Waiting on Regulation

One difference that the commissioner noted between the NASDAQ and crypto was a lack of institutional involvement in the latter. This, she says, is due to regulatory uncertainty barring them from entry.

Multiple institutions have made this publicly clear already. Bank of America CEO Brian T. Moynihan said in an interview in May that the company is barred from offering crypto services by the SEC. “They’ve said ‘you have to ask us before you do it – and by the way, don’t ask’,” explained the CEO.

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As such, Romero believes that more institutional involvement will arrive as regulations come into effect.

“My biggest concern is that if regulation fails to keep pace with technology, the most vulnerable people are going to be hurt,” she said.

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