Senator Elizabeth Warren warns crypto could become major threat to US financial system

United States Senator Elizabeth Warren (D-NY) voiced her concerns regarding the cryptocurrency market, urging Treasury Secretary Janet Yellen to pinpoint and resolve the risks posed by the new asset class.

Senator Warren lists five major risks associated with crypto

Warren sent a letter to Yellen demanding further regulation of the crypto industry. The Senator urged the Treasurer to come up with a “comprehensive and coordinated” guideline to help federal agencies regulate digital assets. 

Warren, a longtime skeptic of the new asset class, asked Yellen to exercise her powers through the Financial Stability Oversight Council to make the cryptocurrency industry safer. 

The senator believes that as digital assets become more mainstream, crypto could become a growing threat to the existing financial system. Warren further added that since the industry is under-regulated, there are five main risks. 

She listed exposure to hedge funds and investment products that lack transparency, risks to banks, cyberattacks, DeFi and threats posed to stablecoins as the main risks.

The Senate Banking Committee held a hearing titled, “Cryptocurrencies: What are they good for?”, which featured leading commentators including Jerry Brito, Marta Belcher and Angela Walch.

Warren highlighted that the hype and volatility of the crypto market are warning signs that are “flashing.” She added that as the digital asset market grows, larger risks are posed to financial stability and the US economy. 

She further highlighted that regulators “need to do their job” and intervene “before it’s too late.” 

Conversely, Senator Cynthia Lummis pointed out that the transparency and openness of decentralized finance can promote financial inclusion. 

Senator Sherrod Brown stated that the underlying technology of digital assets – blockchain – could have many useful non-financial applications. Brown added that cryptocurrencies could still be a great solution to the disadvantages of the current financial system. 

Brito, executive director at Coin Center, suggested that the United States should not avoid the industry but instead put guidelines for hedge funds and other market participants in place. 

He added that cryptocurrencies had not reached the stage of systemic implications, referencing previous comments from lawmakers that said digital assets were not seen as a systemic concern in May. 

Brito referred to cryptocurrencies as commodities, which are also invested in by hedge funds and other large corporations.