U.S. Senator Elizabeth Warren calls the crypto market the “new shadow bank” as regulators tussle with potential regulatory decisions.
A recent New York Times report stated that crypto’s move into banking has caused a stir in Washington. Regulators are reportedly scrambling to catch up with the market, which features lending and yield accounts.
The report opens by talking about BlockFi, a firm well known to those in the crypto market. The company has experienced significant growth in its user base and the number of assets held. With this kind of growth, incumbent centralized financial institutions could face a serious challenge from the likes of BlockFi.
But regulators are concerned about the ease with which these services can be accessed. Credit checks aren’t common, which is one concern that the report notes. The rise of DeFi with its multifaceted platforms and the general decentralization led to Warren calling it a shadow bank,
“Crypto is the new shadow bank. It provides many of the same services, but without the consumer protections or financial stability that back up the traditional system. It’s like spinning straw into gold.”
Investor protection is a priority that has long been touted by various U.S. officials, not the least of which is SEC Chairman Gary Gensler. He, too, has repeatedly called for better investor protection, which may just allay some of Senator Warren’s concerns.
SEC working on regulations, ‘investor protection’ in mind
The United States Securities and Exchange Commission (SEC) Chairman Gary Gensler has been at the center of much of the regulatory discussion. Gensler is knowledgeable about the market and the technology, having taught the course at MIT. However, he is not so lenient that he doesn’t believe there should be some serious changes.
Gensler has said that the market needs a “cop on the beat,” and pushed for investor protection. While he does believe there is potential in the technology, the market as of yet is not entirely safe. The market does continue to experience hacks and cases of fraud, though it is maturing beyond that.
The SEC continues to hold an ETF approval at bay as it deliberates over this regulation. There are currently over a dozen ETFs on its plate, but the signs point to a decision coming sooner rather than later.