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After the end of the FTX empire, the dominoes continue to fall. The latest victim, crypto lender Genesis Global Capital, probably won’t be the last. Each failure further erodes trust, reduces activity and revenue, and puts pressure on the entire industry. Without a lender of last resort to provide emergency assistance, it does little to stop corruption, as the Federal Reserve does to traditional banks.
Some people think that’s fine. They argue that cryptocurrencies are largely unproductive speculative bubbles and should be allowed to deflate on their own. Intermediaries such as unregulated banks that deposited the money had little or nothing to do with the potential of the underlying technology.
But such thinking ignores two important points. One is that governments usually take steps to protect those who do not have the ability or means to protect themselves. Prescription drugs are effective and well-deployed, motor vehicles are safe, roads are properly marked and maintained, doctors and lawyers are qualified, casinos are We aim to ensure that it does no harm. Why is crypto different?
Secondly, why throw your baby out with the bath water? Making cryptocurrency investments safer will help develop the technology, which may still have valuable applications. Some promising areas:
• Digital ID. With current technology, meeting anti-money laundering and know your customer rules requires costly and often redundant assessments and reporting. Blockchain has the potential to make systems more efficient and strike the right balance between privacy and security.
• Cross-border payments. Blockchain could underpin a new global payment “rail” that improves slow and costly correspondent banking.
• Securities trading. By enabling instant and simultaneous transfers of money and assets, blockchain technology can significantly reduce the risks associated with clearing and settlement.
• Asset Ownership. By allowing ownership to be represented using digital tokens, blockchain eliminates the need for title insurance in real estate transactions and promotes inclusion by making small investments easier and less expensive. can.
So why aren’t these use cases more fully realized? It can take time for new technologies to bring about new industries and ways of doing business, and in the early stages, it’s hard to know where the technology will lead. I don’t know practically. It took decades for power generation to allow mass production and the transition to the Model T. There was a long lag between the advent of open source software and his LINUX used in applications ranging from cloud computing to Android smartphones. Xerox’s famed Palo Alto Research Center made little profit for Xerox, but eventually gave rise to personal computers and many other innovations.
Standing on the sidelines and allowing cryptocurrencies to collapse is not the way to maximize profits from this nascent technology. Instead, legislators and regulators should do their job. Requires stablecoins (tokens with value pegged to fiat currencies) to be fully backed by safe assets denominated in those currencies, such as short-term government bonds and central bank reserves. We work with industry to establish best practices and enforce those standards nationally and internationally.
So far, regulators have opted for errors of omission over fees, choosing to do nothing rather than risk making mistakes. The result is billions of dollars in losses and loss of confidence in both the industry and regulation. they need to be more proactive.
Bloomberg Opinion Details:
• The crackdown on cryptocurrencies is just beginning: Lionel Laurent
• FTX planning a comeback: Matt Levine
• Will cryptocurrency be a safe investment?: Andy Mukherjee
This column does not necessarily reflect the opinions of the editorial board or Bloomberg LP and its owners.
Bill Dudley is a Bloomberg Opinion columnist and senior advisor to Bloomberg Economics. He is a Senior Fellow at Princeton University and has served as President of the Federal Reserve Bank of New York and Vice Chairman of the Federal Open Market Committee.
More articles like this can be found at bloomberg.com/opinion.
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