A rush to put out new crypto regulatory guidance has slowed down as a drop in asset values has made the task less urgent, a senior banking regulator said.
Federal agencies have in recent months seen a less pressing need to publish planned interagency guidance on how banks should treat digital assets, Michael Hsu, acting comptroller of the currency, said 7 September at a banking industry conference in New York.
The overall crypto market capitalization sat at about $960bn on 7 September, down from about $3tn in November, according to data provider CoinMarketCap.
He highlighted the Terra collapse — the stablecoin TerraUSD, ostensibly pegged to the US dollar, which plunged in value in May — as a major event that disrupted an industry that had been “running really rapidly.”
“Now there’s just a little bit more breathing space,” he said. “We have time.”
The Office of the Comptroller of the Currency in November joined the Federal Reserve Board and Federal Deposit Insurance Corporation to announce what they called a “policy sprint” on crypto assets. The agencies promised the move would deliver clarity on their expectations for certain banking activities related to digital assets.
Hsu said the sprint was conceived in a period of “intense curiosity and questions” from banks regarding digital assets, but that the industry has since seen turmoil.
“There’s something that we as regulators do have to be conscious of: Crypto is very hype-driven,” said Hsu.
Hsu also cautioned that involvement in cryptocurrencies can pose some particular risks for traditional financial institutions, noting that internet forums are replete with stories of “devastated” crypto investors.
He added that for banks that simply want to hold digital assets as custodians, cryptocurrencies, because of their use of keys and disintermediation, are very different from the traditional assets institutions might be used to safeguarding.
The regulators are continuing to work among themselves on the various issues faced by the industry but are now “proceeding carefully,” Hsu said.
“It’s not that it can’t be solved, but it requires a lot of careful thought,” he said. “We just want to make sure we get this right.”
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