US Treasury Secretary Janet Yellen is scheduled to address Congress today, focusing on the potential risks the crypto industry poses to the financial system. Her prepared remarks, which have been released before her appearance before the House Financial Services Committee, highlight a comprehensive evaluation of financial system risks, with a particular emphasis on the challenges and uncertainties posed by digital assets.
Janet Yellen Calls For Crypto Regulation
In her statement, Yellen specifically points out, “The Council is focused on digital assets and related risks such as from runs on crypto-asset platforms and stablecoins, potential vulnerabilities from crypto-asset price volatility, and the proliferation of platforms acting outside of or out of compliance with applicable laws and regulations.”
This statement underscores the Treasury’s growing concern over the stability and regulatory compliance of the market. Yellen’s testimony comes at a critical time for the crypto industry, which continues to navigate through high-profile setbacks, including the notable collapse of the FTX exchange. Yellen had previously compared this event to the “Lehman moment” for crypto, drawing parallels to the 2008 financial crisis.
The testimony will cover five primary areas identified by the Financial Stability Oversight Council (FSOC), which Yellen leads. These areas include risks from the banking and nonbank financial sectors, climate-related financial stability risks, cybersecurity threats, the impact of artificial intelligence in financial services, and the specific risks associated with digital assets. The inclusion of digital assets as a key focus area reflects the FSOC’s recognition of the significant challenges posed by the market’s volatility and regulatory compliance issues.
Additionally, Yellen will emphasize the need for legislative action, specifically regarding the regulation of stablecoins and the spot market that are not considered securities. “Applicable rules and regulations should be enforced, and Congress should pass legislation to provide for the regulation of stablecoins and of the spot market for crypto-assets that are not securities. We look forward to continuing to engage with Congress on this,” the statement read.
The FSOC’s 2023 annual report, which already highlighted concerns about the price volatility and interconnectedness within the crypto industry, aligns with the points Yellen is expected to make in her testimony. The report and Yellen’s remarks are likely to spur legislative and regulatory bodies to focus more intensively on the sector.
Furthermore, US Congress is set to include discussions on SAB 121, an SEC bulletin that has sparked debate within the community. This bulletin requires banks and firms that custody crypto to record customer holdings as liabilities on their balance sheets. The resolution of this issue is crucial for the industry, as it directly impacts how crypto assets are accounted for and regulated.
At press time, Bitcoin traded at $43,025.
Featured image from Junior Scholastic, chart from TradingView.com
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