Prices of digital assets continued to fall Tuesday following steep declines in recent days, and at least one regulator is concerned about financial contagion spreading through the crypto economy.
Christy Goldsmith Romero, who serves as a member of the Commodity Futures Trading Commission, said in an interview with Axios Tuesday that she sees parallels between crypto markets today and the banking industry in the 2000s, in the years leading up the financial crisis.
“The first [similarity] is that we’ve got a pretty sizable market that’s largely unregulated and regulators just have no window into it,” she said. “The second is that the market has become pretty broadly correlated with the broader equity markets.”
Goldsmith Romero, a Democrat who served as special inspector general for the Troubled Asset Relief Program before joining the CFTC this year, noted that the regulator does not currently have the authority to oversee the spot markets for cryptocurrencies like bitcoin
“What you’re seeing is the crypto markets are really becoming correlated with the equity markets, so you can really watch bitcoin rise and fall with the Nasdaq
” she added, noting that this creates risks for crypto firms.
“That’s not how it was sort of designed, but that’s what happened,” she said. “In a down market you’re going to see risk exposed, and that becomes really important.”
She added that a major difference between crypto today and the economy of the 2000s is that major financial institutions have not invested in cryptocurrency on a large scale and they they’re waiting for more regulation before they do so. “There’s going to be a lot more interconnections, or a lot more independence,” she said. “But there’s also going to be a lot more customer protections, a lot more guardrails.”
Congress is considering legislation that could impose a new regulatory framework for digital assets, with two high-profile bipartisan bills released last week that would give the Commodity Futures Trading Commission primary oversight of crypto markets.