CFTC commissioner compares crypto contagion risk to 2008 financial crisis

Commodity Futures Buying and selling Fee’s (CFTC) Christy Goldsmith Romero has pointed to the collapse of the Terra ecosystem and its flow-on results for example of how contagion dangers inside crypto markets are much like these skilled by the standard monetary (TradFi) system throughout the world monetary disaster (GFC) of 2008. 

Romero suggested in a speech given on the Worldwide Swaps and Derivatives Affiliation’s (ISDA) Crypto Discussion board on Oct. 26 that elevated hyperlinks between crypto markets and TradFi will increase the chance posed by crypto to general monetary stability, noting:

“The digital asset market stays comparatively small and contained from the extent of systemic danger that might include higher scale or interconnections with the standard monetary system. However this is probably not the case within the close to future, notably given rising curiosity by conventional finance.”

One space of TradFi the commissioner would like to stay distant from crypto is retirement and pension funds, an opinion which has seemingly been influenced by latest occasions within the U.Ok. the place pension fund points required intervention from the Financial institution of England.

I’ve important issues about the opportunity of pensions and retirement funds investing in #Cryptocurency

— Commissioner Christy Goldsmith Romero (@CFTCcgr) October 27, 2022

Whereas Romero cautions the U.S. to not rush laws, she helps a “similar danger, similar regulatory final result” strategy as the extent of danger posed by the crypto trade will increase, suggesting:

“Just like post-crisis reforms, Congress can deal with monetary stability dangers by offering extra authority to the CFTC.”

The GFC took place after banks started to lend recklessly to individuals with out the means to completely pay again their mortgages. These ‘subprime’ mortgages have been bundled collectively and bought as secure funding merchandise earlier than defaults began a ripple impact that unfold the world over.

Associated: ‘Secretly circulating’ draft crypto invoice might be a ‘boon’ to DeFi

Whereas the CFTC is commonly considered the extra crypto-friendly regulator in comparison with the Securities and Change Fee (SEC), it seems to be trying to alter that picture as a part of its bid to realize extra regulatory oversight after revealing it instigated 18 enforcement actions on the sector all through the 2022 fiscal 12 months.

One of many newer CFTC actions was the tremendous levied on the Ooki DAO and its members, which was closely criticized by a CFTC commissioner and members of the crypto neighborhood, who referred to it as “blatant regulation by enforcement.”

Earlier than this motion, decentralized autonomous organizations (DAOs) have been regarded by many advocates as being “above the regulation”, and have resulted within the formation of authorized entities inside DAOs as a method to restrict legal responsibility.