Crypto Meltdown Prompts Yellen to Call for New Regulation
WASHINGTON — Treasury Secretary Janet Yellen, responding to the recent sharp decline in the value of cryptocurrencies, said Thursday that additional federal regulation was needed to respond to the wave of speculative investment in the currency whose secrecy is an essential part of its appeal.
“We really need a regulatory framework to guard against the risks,” Yellen said of cryptocurrencies called stable coins, during a House committee hearing Thursday. Citing the rapid rise in use of digital assets, she added, “Really, we need a comprehensive framework so that there are no gaps in the regulation.”
A stable coin is a cryptocurrency that has a fixed value. It can be a crypto currency pegged to the dollar or another currency, such as gold. The parity it has with the dollar makes it theoretically stable. But volatility on the cryptocurrency market has questioned that assumption.
“We’ve had a real life demonstration of the risks,” she said, referring to the meltdown of the TerraUSD beginning on Monday.
Continue reading: Here’s Why Bitcoin and Other Cryptocurrencies Keep Crashing
A run — or sale by a large number of owners — on the Terra stable coin, caused it to drop in value from roughly $8 to below 30 cents.
Monday’s Federal Reserve Report outlines how vulnerable stable coins can be to rans.
“Terra broke the buck and this morning and yesterday the largest stable coin Tether a lso broke the buck,” referring to another token that dropped below its dollar peg this week.
Yellen was also questioned during the hearing about inflation’s root cause and what the administration will do to reduce rising prices for energy, housing, and food.
She indicated that the administration was doing all it could to fix supply chain issues as well as other contributing factors to inflation.
“We have a really good strong labor market, we have household balance sheets that are in good shape,” as well as a strong banking sector, Yellen said.
“All of those things suggest that the Fed has a path to bring down inflation without causing a recession,” she said.
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