Elizabeth Warren: Cryptocurrency is the new shadow banking that wants to turn straw into gold

Former U.S. presidential candidate and Democratic Senator Elizabeth Warren has criticized the way cryptocurrencies operate outside the rules of the financial industry, calling them the "new shadow banks."

“Crypto is the new shadow banking,” Warren said in an interview over the weekend. “It provides a lot of the same services but without the consumer protections or financial stability that the traditional system has.”

Warren added: “It’s like spinning straw into gold.”

Shadow banking, or transaction-based activities that take place outside of traditional banking and therefore fall outside of regulatory oversight, was one of the factors that contributed to the 2007-2008 subprime mortgage crisis that ultimately triggered the global financial crisis.

Warren also raised the possibility of banning the U.S. banking industry from holding cash deposits to back stablecoins, which could “effectively end the surge in cryptocurrency markets.”

Warren has been opposed to cryptocurrencies and called on U.S. Treasury Secretary Janet Yellen to set stricter rules for the industry. The lawmaker's main concern is that retail investors could be harmed in volatile and unregulated markets such as cryptocurrencies.