Regulators and policy makers must sometimes feel their task is thankless when it comes to reining in the consumer-led euphoria sweeping cryptocurrency and financial markets amid Covid-19.
This week’s reaction to crypto exchange Bitfinex reaching a $18.5 million settlement with New York’s Attorney General over allegations that it covered up losses and lied about reserves has pretty much been to carry on as before. “On the grand scale of things, it’s less than a speeding ticket,” one investor told Bloomberg News. The exchange and its affiliated stablecoin, Tether, pegged to the U.S. dollar and traded widely in Asia, have been banned in New York — yet Tether’s $36 billion market value is seven times what it was at the probe’s start.
Regulatory warnings about Bitcoin’s unpredictable price swings — the cryptocurrency is down 14% since Monday, but up 30% over the past month — have struggled to cut through. U.S. Treasury Secretary Janet Yellen called it an “extremely inefficient” way to conduct transactions (which is true), while the European Central Bank’s Gabriel Makhlouf compared it to Dutch Tulipmania (which is more debatable). They’re being ignored in the face of superstar bulls like Cathie Wood of ARK Investment Management LLC or Tesla Inc. billionaire Elon Musk, who expertly push grand tech narratives that capture the imagination as well as cash. Laser-eye avatars are whipping up the crowd.
Tougher measures have also brought criticism. When Nigeria’s central bank ordered local lenders to stop dealing with crypto exchanges earlier this month, citing “inherent” risks and criminal activity, the consumer backlash was echoed by senators who thought the ban went too far. This isn’t just a crypto thing: U.S. politicians on both sides of the aisle leapt to the defense of Redditor day-traders after they were blocked from trading GameStop Corp. Elected officials are often reluctant to damp animal spirits, especially when the narrative is that the “little guy” is being crushed by the system.
Regulators shouldn’t let their guard down despite these obstacles. This is hardly systemic-risk territory right now: The crypto market is worth about $1 trillion, or half that of Apple Inc., and GameStop’s market value of $6.4 billion is even smaller. But the ingredients of a speculative boom are…
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