Federal Reserve Chairman Jerome Powell has made it clear that the central bank does not want to stifle crypto innovation but warned that the industry is still fraught with fraud and risks.
On Tuesday, Powell testified before the Senate Banking Committee on Capitol Hill. When asked about the cryptocurrency space, he Said that the US central bank was “quite active” in that area, while acknowledging that blockchain technology has some real-world use cases.
He told committee members, “We have to be open to the idea that — somewhere — there is technology that can be channeled into productive innovation that improves people’s lives.”
“We don’t want regulation to stifle innovation in a way that just favors the incumbents and things like that. But, like everybody, we’re watching what’s happening in the crypto space and what we see It’s a lot of turmoil, we see fraud, we see lack of transparency, we see run risk.
He once again warned that banks and other financial institutions need to be careful about how they interact with crypto. “We see a lot of things in crypto activity that suggest that regulated financial institutions should be quite cautious in doing things in the crypto space,” he said.
During the hearing, Powell said he would welcome Congress’ move to come up with a new legal framework for crypto. He added that although regulators are concerned that banks are getting involved in stablecoins, such tokens can have a place in the financial system if they are properly regulated.
Following high-profile failures in the digital asset space last year, in which The Fall of FTXOnce the third largest cryptocurrency exchange in the world, US regulators have taken an increasingly aggressive stance on the crypto industry.
The SEC, in particular, has been cracking down on crypto companies. So far this year, the commission has ordered Kraken to cease its staking services and pay a $30 million fine, while threatening paxos Binance USD (BUSD) stablecoin launch lawsuit.
Could crypto contagion spread to tradefi?
Crypto-Friendly Bank As Silvergate Focuses On Institutions Dealing With Crypto Companies facing difficulties Due to the recent crypto meltdown. Last week, the bank announced that it would not be able to file its annual 10-K financial report to the SEC on time and is evaluating its ability to stay in business.
Silvergate was one of the lenders most affected by the fall of FTX last November. As mentioned, Silvergate faced a bank run Following the collapse of FTX and had to sell $5.2 billion of debt securities held on its balance sheet to cover approximately $8.1 billion in user withdrawals.
As a result, it incurred a loss of $718 million, which reportedly exceeds the bank’s total profits since 2013. Furthermore, Silvergate only has $3.8 billion in deposits at the end of 2022, compared to $11.9 billion in 2021.
Silvergate’s troubles could be a source of concern for the traditional finance industry, like the bank Received At least $3.6 billion in loans from federal home loan banks, a system originally designed to support housing finance and community investment.