While the collapse of cryptocurrency exchange FTX prompted many US lawmakers to call for new regulations on the cryptocurrency industry, an economist offered a different view on Tuesday.
Stephen Cecchetti, an economist and professor at Brandeis International Business School, spoke out against federal regulation for cryptocurrencies during a debate on the topic hosted by the Brookings Institution, a Washington, DC-based think tank. He gave five main reasons for his view of him, starting with one related to Activision Blizzard’s major ATVI,
“First, and the strongest argument, I think, against regulation is about conferring legitimacy,” Cecchetti said.
“I think a lot of these things are like a video game, so if I look at an analog, World of Warcraft has 120 million players and it has an economy within it. Fortunately, no federal financial regulator has the responsibility to oversee World of Warcraft. And while there’s money involved, I don’t think any of us would call on them to oversee massively multiplayer online games. Like World of Warcraft, cryptocurrencies, in my view, do nothing to support the real economy, so legitimizing them will simply mean draining creative resources from productive activities.”
Second, Cecchetti said, the United States already has laws and enforcement mechanisms in place to address “fraud, theft, and the facilitation of criminal activity.”
“It is essential that prosecutors address the misconduct which is, in my view, the defining feature of the cryptocurrency world. They should do this by aggressively enforcing existing laws and, where appropriate, going after celebrities who promote these things,” she said.
Third, the Brandeis professor argued that “the new lightweight rules for the cryptocurrency world would fuel the migration of financial activity from traditional finance to the less regulated but newly legitimized cryptocurrency world.”
Fourth, he said that while some people argue that regulating cryptocurrencies will foster financial innovation, he doesn’t see it that way.
“As long as regulators foster competition, nothing prevents traditional intermediaries from investing in new technologies, which they always do. And these technologies are reducing costs and improving access,” said Cecchetti, who previously worked as head of the monetary and economics department at the Bank for International Settlements, which is often described as a central bank for central banks.
Finally, Cecchetti expressed concern about KBE banks,
dive into virtual currencies BTCUSD,
“Fifth and finally, the legitimacy of cryptocurrencies will encourage banks to buy cryptocurrencies directly and lend them as collateral. Imagine where we would be if leveraged financial intermediaries had held cryptocurrencies in November 2021 before the value crash,” he said.
He also talked about keeping cryptocurrencies on another planet, so to speak.
“If pretty much all transactions in the cryptocurrency world stayed within the cryptocurrency world with no connection to the real economy, it would be like this stuff happening on Mars and it would leave the traditional financial system unaffected,” he said. .
“That should be our goal. So my conclusion is that creating a separate federal financial regulatory regime for cryptocurrencies would make the system less, not more, secure.”
Peter Conti-Brown, a financial historian, legal expert and professor at the Wharton School at the University of Pennsylvania, stood up to Cecchetti in Tuesday’s debate, arguing that federal regulators have a lot more work to do with cryptocurrencies.
“The last point Steve agrees on is that now is not the time for us to have a specific regulatory regime for cryptocurrencies. But that’s not the debate. The debate is whether we should regulate cryptocurrencies, and I will jokingly suggest Steve admits the debate,” Conti-Brown said after hearing Cecchetti’s five points.
“Steve, you said we should aggressively enforce existing laws. The issue is what laws will be enforced against cryptocurrencies and there are non-trivial definitional and legal issues.”
Democratic Senator Elizabeth Warren of Massachusetts is among the lawmakers who have called for tougher rules on cryptocurrencies in recent weeks.
Related: CFTC chief calls for ‘comprehensive’ rules to avert another FTX meltdown
And you see: “Cryptocurrency Is a Garden of Snakes,” Says Democrat Congressman As Congress Investigates FTX Fallout
More: “FTX and cryptocurrencies are not the same thing,” says the Republican defender. “The code has committed no crime.”