For US Commissioner Christy Goldsmith Romero, the two recent crypto crashes are reminiscent of certain elements of the financial sector before the 2008 crisis.
If the cryptocurrency market has experienced any uptick in recent hours, it’s not a long calm river. Twice, in May and June, the ecosystem experienced unprecedented upheavals. The combination of tensions in the traditional financial markets and the fall of the terra luna blockchain have caused the two major cryptocurrencies to falter.
Bitcoin and ether have lost more than 70% of their value from their historic peak in November. The fall of cryptocurrencies has melted many investors’ wallets and weakened certain crypto companies, some of which have even filed for bankruptcy.
Growing risks
“The perceived vulnerabilities warn of growing risks within the cryptocurrency market, with parallel themes during the 2008 financial crisis,” Christy Goldsmith Romero, commissioner of the Commodity Futures Trading Commission (CFTC), said at a conference in New York.
For the manager, a major problem has already been identified by certain authorities, including the IMF and the ECB. That of the growing connections between traditional finance and the cryptocurrency market.
“The risk to financial stability could reach a level of systemic risk if there are more interconnections between the cryptocurrency industry and traditional financial players that perform critical functions in the market in the future,” she said.
Cryptos had to break away from traditional finance
For the latter, the philosophy behind the cryptocurrency project in a decentralized universe is actually unknown. Cryptocurrencies had to “break” from the traditional financial system, the official says. “However, unregulated crypto markets have revealed their vulnerability to financial stability risks similar to traditional finance, with themes paralleling those of the 2008 financial crisis.”
So far, if the United States considers regulating these assets, Europe has a head start with MiCa (Market in crypto-assets) regulations coming into effect in 2024.