Acting Comptroller of the Currency Michael Hsu is warning investors about cryptocurrencies and stablecoins.
In an interview with Yahoo Finance Live, Hsu said, “Stablecoins are not stable…The growth in crypto is driven by hype. Part of the reason that Terra was able to grow so quickly, it was hyped and there were some attractive yields that were not sustainable put onto it.”
He further warned of the potential for contagion in cryptos, noting how the run on Terra and sister token Luna that tore through crypto markets on May 9th, showed how fast one coin’s collapse can spread to others.
Hsu went on, “Risk is real. You saw the selloff lead to both a broader selloff in the cryptocurrency market generally… and you saw some pressure on another stablecoin, Tether, which is not algorithmic. I think it reveals fragilities in the space that everyone needs to be careful about.”
Hsu noted how the rapid swings on the crypto-space do not bleed over into the regular market, something he attributed to the regular financial system being kept well isolated and safeguarded from the risky crypto world.
Hsu’s comments were made federal regulators are carrying out a White House executive order to examine the crypto space, and create recommendations for how to regulate stablecoin and cryptocurrency markets. Last fall, a Presidential Working Group on Financial Markets recommended stablecoins coins be classified as banks to regulate them, and prevent runs on them similar to what occurred with Terra. Meanwhile Congress is taking a closer look at the crypto-space, and how it might be regulated from a congressional perspective.
Hsu was asked why regulators are choosing to wait for Congress to act, rather than simply applying current authorities to impose rules on the sector, Hsu said, “There are a lot of discussions taking place right now amongst the regulatory community, me and my peers. As you know, the [Financial Stability Oversight Council] has identified … the crypto world as something that the council, of which I’m a member, and others are paying attention to. It’s very important to protect investors, to understand these things, and that’s very important to me and to us in the regulatory community, is protecting people,” Hsu added. “This is big enough now where this is an important thing we have to pay attention to. We’ve taken the approach where if a bank is going to do this, anything in the crypto space, they have to demonstrate to us that it’s going to be safe, sound, and fair. I think the standard we’ve applied has really helped to keep these issues contained within the crypto universe and not affect the traditional banking system.”
Hsu said the OCC can still supply special purpose charters to banks who wish to operate in the crypto-space.
“We’re open minded about who wants to get a charter and what they want to do with it. We’re going to kick the tires on it to make sure it’s safe, sound, and fair, I want to make sure that the way we exercise our authorities and decisions around charters don’t lead to regulatory arbitrage or races to the bottom, and that’s another important set of priorities for me.”
