Janet Yellen, the Secretary of the United States Treasury, said on Wednesday that the recent turmoil in the cryptocurrency market has not spread to the banking sector but that she remained skeptical of the industry and believed it needed adequate regulation.
At a New York Times DealBook event, Yellen stressed the need for strong consumer safeguards when dealing with cryptocurrency.
“I have been skeptical, and I remain quite skeptical,” she said.
She also noted that recent developments were about something other than lowering the cost of cross-border transactions or increasing financial inclusion but emphasized the importance of remaining open to financial innovations.
She argued that the current lack of regulation in the industry was evidenced by the past few weeks’ events and earlier events.
When filing for bankruptcy in Delaware on November 11th, cryptocurrency exchange FTX claimed it owed its 50 largest creditors nearly $3.1 billion. A million customers and other investors lost billions due to the high-profile crypto crash.
Yellen told DealBook that the United States was talking with its allies about regulating cryptocurrencies and that the Treasury Department had produced multiple reports outlining “significant” concerns.
Yellen mentioned that preventing issues like the one at FTX would be a top priority, so she said protecting customer assets and keeping them separate.
The Treasury Secretary compared the cryptocurrency crisis to the 2008 bankruptcy of the Lehman Brothers investment bank, which caused a massive stock market downturn and resulted in a $700 billion bailout of financial players by the U.S. government.
“Fortunately, the banking industry has been spared from the effects of the explosion we witnessed. Government agencies tasked with overseeing the banking industry have been extremely cautious when it comes to cryptocurrencies “Yellen said.
There has been significant damage with investors, and it’s “a Lehman moment within crypto.”