U.S. policymakers have been scrambling to develop a regulatory framework for crypto to protect the financial system. However, Fed governor Lisa Cook thinks that new regulations are unnecessary.
She based this premise on the fact that the FTX collapse did not affect the banking system. Speaking at an event on Nov. 30, Cook said that the failure of several digital asset platforms had not impacted the broader financial system.
This is proof that regulators have the tools they need to prevent spillover from issues in the crypto and stablecoin markets, she added.
“Because we haven’t seen the crypto crisis lead, thus far, to a financial crisis, that says that the regular banking regulations — regular examinations, examiners asking questions about this potential intersection between crypto and banking activities — those actually have stood up,”
No Crypto Regulations Required
There has been no run on traditional banks in the wake of the FTX collapse. Furthermore, the crypto industry is worth a fraction of traditional finance at under $900 billion in total market cap.
Cook added that there might not be a need for a lot more different types of crypto regulations. “Maybe we just need to do the job that is already within our power to do,” she commented.
The central banker said that the financial system had emerged quickly from a pandemic-induced recession. This has largely been down to Fed monetary policy, however, that aggressive action is about to slow.
On Nov. 30, Federal Reserve chair Gerome Powell said that the central bank would slow its pace of tightening monetary policy as soon as December. This could be good news for risk-on assets such as crypto, as markets are already showing signs of recovery.
“There is adequate capital in the system and I think this is something that the Federal Reserve is satisfied with,” said Cook. The comments are bullish for crypto as central bankers do not see it as a threat to traditional finance.
If anything, banks are a bigger threat to the financial system, as evidenced by the 2008 financial crisis. Bitcoin itself was spawned from this investment bank-induced crisis.
Bear Market Recovery?
Crypto markets have shown solid momentum this week in light of the Fed chair’s comments. Total market capitalization topped $900 billion for the first time since the FTX collapse.
Additionally, crypto markets have gained 10% since the latest market cycle bottom on Nov. 22. However, there is still a lingering concern that heavy-handed crypto regulations will follow next year.
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