Crypto regulation has long been a very divisive topic amongst various investors, who are very concerned about who is regulating the market. One of the major defining features of the crypto market is that it is free from more typical forms of regulation, compared to various other financial institutions.
However, the Financial Stability Oversight Council of the Treasury Department for the US voiced its concerns over cryptocurrencies. While the crypto market has had various highs and lows throughout its history, the most recent crypto crash has led to investor sentiment diminishing over time.
With NFTs and DeFi exchanges losing 90% of their value in a matter of weeks, the need for regulation has become apparent. In fact, investors now understand the importance of effective regulation, which can help them avoid the extreme highs and lows that come every few months.
FSOC Concerns Over Crypto Market
The FSOC believes that cryptocurrencies can cause serious damage to the financial stability of the US. Established from the Dodd-Frank Act, the council was put in place to assist in identifying issues with US financial stability.
The council is also responsible for ensuring that the US remains financially stable. And when it sees that the crypto market is heavily unregulated, it understands the threat that stablecoins could pose. More specifically, they are concerned about how the popularity of cryptocurrency continues to grow. They are very worried that since it doesn’t adhere to most forms of regulation, it can fluctuate wildly.
The Increased Likelihood of Criminal Activity
Of course, the important thing that stands out about regulation is that it doesn’t just control prices for different currencies, but it is also one of the most important aspects of protecting the industry from bad actors. Hackers and cybercriminals take advantage of every single aspect of cryptocurrencies to further their means.
Recent reports from various security firms in the crypto space have tracked the sheer magnitude of the money that has been involved in illicit activities. Close to $4 billion in funds have either been stolen or have been laundered through the crypto market.
The Possible Connections to the Traditional Banking System
The growing popularity of cryptocurrencies means that it is building connections with more traditional forms of finance. These connections can prove to be especially troublesome since it is not regulated. Therefore, if more traditional forms of finance join with these different platforms, the rapid and drastic fluctuations could lead to the banks suffering as well, which in turn, can be catastrophic for the financial stability of the country.
It is why the FSOC has voiced its concerns over cryptocurrencies, especially at the popularity of stablecoins, which can drop or rise at a moment’s notice.