U.S. Senator Warren wrote to Treasury Secretary Yellen calling for a "tight rein" on cryptocurrencies

U.S. Senator Elizabeth Warren urged Treasury Secretary Janet Yellen on Tuesday to identify and correct the risks posed by cryptocurrencies and develop a "comprehensive and coordinated" framework through which federal agencies can continue to regulate them.

Warren, a member of the Senate Banking Committee and a longtime critic of big U.S. banks, urged the Treasury secretary to use her authority at the Financial Stability Oversight Council (FSOC) to build a safer crypto market.

According to an open letter from Warren to U.S. Treasury Secretary Janet Yellen, the FSOC must act quickly to use its statutory powers to address the market risks and regulatory issues of cryptocurrencies to ensure the safety and stability of the financial system.

She also mentioned in the letter that as the demand for cryptocurrencies continues to grow, it may bring systemic risks to the US financial system. At the same time, it lacks "sufficient supervision." Currently, the total market value of cryptocurrencies is about 2 trillion US dollars.

In addition, Warren also listed the five major risks in the cryptocurrency market, namely the opaque exposure of investment tools such as hedge funds, the risks faced by banks, the unique threats posed by stablecoins, cyber attacks used to disrupt the financial system, and the risks of decentralized finance.

At the same time as the open letter was sent, Warren also held a hearing with other members of the Senate Banking Committee titled "Cryptocurrencies: What are they good for?" During the hearing, the senators questioned Coin Center Executive Director Jerry Brito, Filecoin Foundation President Marta Belcher and Angela Walch, a researcher at the University College London Center for Blockchain Technologies.

Warren also said that currently, cryptocurrencies and other digital assets have posed significant risks to the existing financial system. As they penetrate into the traditional financial system and more and more people invest in them, their risks are being magnified.

Who will supervise?

In fact, there are growing calls for tighter regulation of cryptocurrencies in the U.S. Warren’s letter is the latest criticism and call on the topic.

Regulating the crypto market has become trickier given the number of assets and the novelty of the technology behind digital currencies. To date, it has been unclear which agency — the FSOC, the Securities and Exchange Commission (SEC) or Congress — will ultimately be responsible for day-to-day oversight of crypto trading.

Since the regulatory agency for cryptocurrencies is still unclear and given that Yellen holds an important position in the FSOC, it is speculated that this may be the reason why Warren wrote to Treasury Secretary Yellen this time.

The FSOC was established in the aftermath of the 2008 financial crisis and is chaired by the Treasury secretary. It brings together 10 federal financial regulators, including the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The agency's main job is to identify risks facing the financial industry and coordinate regulatory responses from cabinet departments and other agencies.

Under the leadership of new SEC Chairman Gary Gensler, the U.S. Securities and Exchange Commission is currently considering whether to approve an exchange-traded fund that tracks the performance of Bitcoin. Many investors say that given Bitcoin's recent gains and the large amount of futures and other derivatives trading in the space, the decision may take a long time. So far, Gensler has repeatedly said that cryptocurrency exchanges should guarantee investor rights.

At the same time, the Federal Reserve is also weighing whether to issue a central bank digital currency.

Republicans on the Senate Banking Committee said Congress should better understand the potential uses of cryptocurrencies while curbing illegal activities. Thankfully, questions about the legality of cryptocurrencies have been raised, but the huge potential benefits offered by distributed ledger technology should not be ignored.

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