One of the consequences of the Federal Reserve’s monetary expansion period during the period 2020-2021 may be related to the regulation of cryptocurrencies.
The price of cryptocurrencies had been very uninteresting until the Federal Reserve began to flood the banking system with liquidity.
This was true of what was happening in many other financial markets.
Well, the Fed saved the economy, at the time, from any serious economic catastrophe, but it created many, many financial bubbles that it now has to deal with while the Fed reverses its actions.
As the Fed tightens its monetary policy to fight the current rise in inflation, one by one, we are finding adjustments in the economy to cope with the monetary accumulation that has taken place in various sectors of the financial world. .
And, we are finding results that bother many.
The initial increase in support for cryptocurrencies that came from libertarian-minded individuals has now receded somewhat.
Increasingly, as evidence of misuse or misapplication of the free market program increases, we find the other side of the argument taking more aggressive positions.
For example, Wall Street Journal columnist Greg Ip writes this morning about “Crypto Meltdown Exposes Hollowness of its Libertarian Promise.”
Mr. Ip writes:
“Unable to move the dollar, cryptography has become one more asset without the guards of traditional markets.”
In addition, the Financial Times’ main editorial, written by Jemima Kelly, states, in bold, “There is a moral case against crypto.”
Ms. Kelly writes:
“It seems more appropriate to use the latest market crash as an opportunity to make the moral argument against cryptography. Because it’s not just that we shouldn’t treat it as a serious asset class; we should also stop imagining that it’s just a bit of fun. harmless “.
Thus, some of the weaknesses of the Libertarian case came to light.
But, we should not overreact and go too far in the opposite direction.
Yes, crypto markets have lost more than $ 1.0 trillion in value in the last six months.
The price of a Bitcoin (BTC-USD) was just over $ 67,000 on November 10, 2021.
Today, the price is around $ 30,000, while several days ago it was below $ 26,000.
TerraUSD (UST-USD), a token whose price was to remain pegged to the dollar, suddenly fell, along with the currency (LUNA-USD) which was intended to support it.
We do not fully experience the consequences of the recent collapse and look forward to the new ramifications of unregulated space.
Is the Regulation coming?
Gary Gensler, chairman of the Securities and Exchange Commission, said his mission is to regulate these cryptocurrencies.
Mr. Gensler is building his case.
After testifying before the House Assignment Committee panel hearing on Wednesday, he told reporters:
“I think many of these tokens will fail.”
“I’m afraid that in cryptography … there will be a lot of injured people, and that will undermine some of the confidence in the markets and the confidence in the markets in general.”
Mr. Gensler has his mission set for him.
Others, like Rostin Behnam, chairman of the Commodity Futures Trading Commission, are there with him.
The pieces are all coming together.
Earlier this month, the SEC said it plans to add 20 investigators and litigants to its cryptocurrency and cybersecurity enforcement unit, nearly twice the size of the unit.
Still, Mr. Gensler doesn’t think this is close enough and more will be added later.
Mr. Gensler and his predecessor, Jay Clayton, believe that most cryptocurrencies meet the legal definition of security and should therefore be registered with the SEC.
“There’s a way forward,” Gensler says.
Mr. Gensler is in the process of building that path. These days it is getting more and more support for this effort and the number of defenders seems to be increasing.
For me, this battle is going to grow and grow.
I lean towards less regulation than more. But, I think that the need for regulation by pure philosophical thought should not simply be ruled out.
People cheat. People cut corners. People have incomplete knowledge. Bad things happen. Markets, in general, seem to have to have some kind of watchdog.
It just makes common sense. In this, I am more pragmatic. And, like Cass Sunstein, I think market regulation should be done incrementally. That we should work through “elbows.”
The problem is, all too often, we wait too long and major problems arise.
To put things in order you have to make big moves.
These big adjustments tend to create their own “unwanted consequences.”
And so, more problems are introduced into the image.
Markets need to be regulated.
My old libertarian times are over.
We have a major fix. A lot, a lot of people are being hurt in the fit.
We need Mr. Gensler and others are moving to bring more regulation to the area of cryptocurrencies to prevent even more pain.
The regulation is coming. We continue with that.