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CFTC Commissioner Compares Cryptocurrency Drops to 2008 Crisis

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Christy Goldsmith Romero, member of the Futures and Commodities Trading Commission (CFTC), gave an interview talking about the current moment of cryptocurrencies. According to the commissioner, the current phase of this market is precisely reminiscent of the 2008 crisis.

In this sense, Romero did not just refer to the moment of strong falls, but to an alleged lack of regulation. Therefore, the commissioner asked the US Congress to urgently pass a regulation in the sector.

The commissioner was particularly enthusiastic about Senator Cynthia Lummis’s bill, which gives the CFTC the power to regulate the industry.

Does current crisis resemble 2008?

Given the turbulent market condition in recent weeks, Romero presented two main risks she sees in the cryptocurrency market.

First, the sector has grown exponentially, but without any regulation. For Romero, this scenario is similar to what happened in 2008, with lax regulations in the financial market.

“There is a very considerable market that is not regulated. Meanwhile, official bodies have no way of intervening because there is a regulatory gap,” Romero said.

Indeed, the prevailing view of the 2008 crisis is that there was a lack of regulation. That’s why companies and banks committed excesses and triggered a general downturn in the market.

Second, Romero points out the correlation between the cryptocurrency market and equities, especially in the technology sector. The commissioner says that this correlation makes the behavior of investors follow a pattern.

“In a bull market, investors rush to buy more of these assets. But when the market goes bearish, you will see exposed risks and widespread selling. My biggest concern is that if laws don’t keep pace with technology, the most vulnerable investors will be hurt,” she explained.

In the interview, journalists asked Romero whether the regulations would prevent the market from evolving. Romero dismissed this idea and said that oversight is essential for cryptocurrency companies to broaden and expand their customer bases.

This is the case of institutional investors, who cannot invest in products not regulated by law. Thus, an investment fund cannot buy BTC on an exchange and store them in a wallet, for example.

The notable difference, according to Romero, between cryptocurrencies today and the economy of the 2000s is precisely this. That is, large institutional investors are still not safe with cryptocurrencies until there is regulation.

CFTC's Goldsmith Romero warns of similarities between crypto today and  banks in 2008 - MarketWatch
Christy Goldsmith Romero

Appeal for regulation

Finally, Romero recommended that Congress do its part. For the commissioner, it is urgent that the US has a regulation for digital assets.

The commissioner expressed support for Senator Cynthia Lummis’s bill, which classifies cryptocurrencies as commodities. In other words, market regulation would be in the hands of the CFTC, which is responsible for this sector.

“We will regulate cryptocurrencies and their derivatives as commodities, but we do not actually regulate spot markets. We have the authority to fight fraud, but it is very limited. We brought execution actions, but we can’t really analyze that market,” she said.

If the law is passed, the CFTC would gain authority to regulate the market and improve security and crime-fighting mechanisms.

The golden years are over

All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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