Following the collapse of FTX, calls for regulation of cryptos have increased among US lawmakers. But doing so would delegitimize the crypto industry, a prominent economist argued this week, and that in turn could lead to broader economic damage.
Brandeis International Business School professor, economist Stephen Cecchetti pointed to the domestic economy. World of Warcraft:online video game with millions of players.
“I think the strongest argument against regulation is to give legitimacy,” he said during a crypto debate organized by the Brookings Institution.
“I think a lot of this stuff is like a video game, and if I look at it analog, it World of Warcraft: has 120 million players and has an economy within it,” he continued. “Fortunately, no federal financial regulator is responsible for monitoring World of Warcraft:. And despite the money involved, I don’t think any of us would call for them to control massively multiplayer online games. How that? World of Warcraft:crypto, in my opinion, does nothing to help the real economy, so legitimizing it just threatens creative resources from productive activity.”
He argued that creating regulations specifically for crypto will affect how banks approach the industry.
“Crypto legalization will encourage banks to buy crypto assets directly and provide them as collateral,” he said. “Imagine where we would be if leveraged financial intermediaries held crypto in November 2021 before the value crashed.”
The value of cryptocurrencies has fallen dramatically since the end of last year. Bitcoin, the largest cryptocurrency, has lost more than 60% of its value this year.
If “almost all the transactions in the crypto world stay inside the crypto world, with no ties to the real economy,” says Cecchetti, “it’s like these things are happening on Mars, and it’s going to move away from traditional finance. the system is unchanged. That should be our goal.”
As for misconduct in the industry, “a defining feature of the crypto world,” he said, prosecutors can address it by “aggressively enforcing existing laws and, if necessary, prosecuting celebrities who promote this stuff,” he said. said:
FTX founder Sam Bankman-Fried has been charged with eight criminal counts, including two counts of wire fraud and six counts of conspiracy to commit securities and commodities fraud, money laundering and campaign finance laws.
“Let Krypton Burn”
Calls for greater regulation have intensified in recent weeks following the epic collapse of FTX.
Last weekend, Senator Sherrod Brown, chairman of the Senate Banking Committee, called for more regulation and left open the possibility of a crypto ban, although he admitted that it would be “very difficult because it would be offshored and who knows how it would work.” “.
After Bankman-Fried’s arrest in the Bahamas, Brown said: “Things that look like securities, commodities or banking products should be regulated and monitored by responsible consumer service agencies…Crypto doesn’t work. free pass because it’s bright and shiny.”
Cecchetti believes a good approach would be to “let crypto burn,” as he and Kim Schoenholz, a professor at NYU’s Stern School of Business, recently wrote in a paper. Financial Times column.
“After the collapse of FTX, authorities should resist the call to create a parallel legal and regulatory framework for the crypto industry,” they wrote. “It’s much better to do nothing and just let the crypto burn.”
Active intervention, they added, “would give an official stamp of approval to a system that currently poses no threat to financial stability and lead to calls for a public bailout when crypto inevitably implodes.”
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