Treasury’s Financial Stability Arm: Crypto Could Jeopardize the US Economy
US — On Monday, the 3rd of October, the US Treasury Department’s Financial Stability Oversight Council (FSOC) released a fresh report on digital assets, focusing mainly on the cryptocurrency space. Unfortunately, the information came during a crucial period, not only for the crypto market but also for the US economy. This is because both have been on a downward trajectory with no prominent upside catalyst for the foreseeable future. Furthermore, the “tone” of the report could devastate further the already hard-beaten crypto market.
A Brief Background on Treasury’s Financial Stability Arm
FSOC was created following the disastrous 2008 global financial crisis. Initially, FSOC helped identify emerging threats to the country’s financial security and systematized a collective response across all US financial regulators. However, until recently, the council has not been keen to regulate the crypto market fully.
In addition, under the Dodd-Frank Act, the FSOC is given the power to oversee and regulate clearing and settlement activities, non-bank financial institutions activities, and financial market utilities and payment systems to prevent possible economic vulnerabilities to the US financial system and help the financial system cope with the ever-changing world.
FSOC Flexing its Muscles against the Unregulated Market
In the Monday report, the Financial Stability Oversight Council issued new sets of caution that detailed how unregulated cryptocurrencies could pose serious risks not only to minor aspects of the US economy but eerily to the world’s largest and most liquid financial system as well. Hence, the report also outlined multiple hardline recommendations to prevent digital assets, particularly cryptocurrency trading, from “destabilizing” the security and integrity of the US financial system.
Among others, the council compelled legislation to tighten the supervision of cryptocurrencies — a landmark move after the council first designated digital assets a “priority area” in February of this year.
The warning was a major portion of the first official central public report released by the Treasury’s Financial Stability arm on digital assets. Moreover, the council expressly identified crypto assets such as “stablecoins” and crypto lending and borrowing activities on the trillion dollar industry’s numerous trading platforms as “important emerging vulnerabilities.”
“The report concludes that crypto-asset activities could pose risks to the stability of the US financial system and emphasizes the importance of appropriate regulation, including enforcement of existing laws,” Treasury Secretary Janet Yellen expressed. “It is vital that government stakeholders collectively work to make progress on these recommendations.”
A Macro Look at the State of Cryptocurrency
Despite Cryptocurrency only comprising roughly less than 1% of total global financial assets, the entire international crypto market capitalization hit a momentous peak of $3 trillion in November last year. An eye-watering market cap from a relatively new asset class.
In fact, although the impact is fairly small in the grand scheme of things (considering how gigantic the global financial system is), the trend shows that digital assets, especially crypto, are quickly gaining momentum and popularity worldwide. Hence, what may be considered a small industry today could soon be a massive household name that no economy, including the US could ignore its importance and influence.
