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Time to get smart about financial technology — and how to regulate the $10T market

Regulators ignore the crypto world at their peril, contend a pair of longtime prominent industry officials and executives.

By Thomas P. Vartanian and William M. Isaac | Guest Columnists
| 4:00 a.m. June 30, 2022
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Opinion

If you truly understand cryptocurrencies, stablecoins, Web3.0, NFTs, blockchain and the metaverse, you are in a select minority. Most of these terms have definitions that change based on who is using them and for what purpose they are being used.

As former federal bank regulators who have handled more than a thousand bank failures over the last 50 years, we think that it is long past time for reasonable oversight to be brought to financial technology businesses. That should not be a controversial concept — every industry that solicits consumer funds is regulated. Yet, the hallmark of this new fintech world is the absence of regulation. That is always dangerous, particularly since the cryptocurrency business — comprised of 18,000 cryptocurrencies, 600 crypto exchanges, $3 trillion of crypto derivative securities and trillions of dollars of leverage — is a $10 trillion market relying on software, networks and systems that are not secure and have coughed up $16 billion of cryptocurrency to hackers. For perspective, the entire U.S. banking industry has $22 trillion of assets.

Recent events should send a sobering message to Congress and regulators. Bitcoin is trading at around $20,000, down from its high just last year of $68,000. Terra and several other stablecoins have run into financial problems, and the extent of marketable assets purportedly backing stablecoins has been challenged in at least one case by the federal government. Crypto exchanges are similarly experiencing financial pressures that are resulting in crypto holders learning that their funds may not be held in a legally separate form but as general reserves available to any creditor in bankruptcy. Confidence — an absolutely critical element of surviving in the financial services business — has been evaporating almost as fast as it expanded.