Crypto could ‘wreck’ the financial system: US lawmaker

The recent turbulence in the cryptocurrency markets, coupled with other events of the past few months. This has led Senate Banking Committee Chair Sherrod Brown to believe that cryptocurrencies could pose a serious threat to global financial stability.

The US lawmaker states that crypto has been used for a plethora of illegal activities, such as theft and fraud.

He notes that “the last thing” anyone would want to see is the new financial product crashing the financial system.

As a result, regulators and lawmakers must work together to implement appropriate measures. Otherwise, crypto could lead the financial world into uncharted territory – one that could be highly problematic for everyone involved.

Despite these concerns, Brown acknowledges that cryptocurrency does have potential benefits. Particularly when it comes to improving access to capital and increasing trade efficiency.

But it is still unclear if crypto can overcome the challenges it faces and truly breaks into the mainstream financial system. Only time – and continued regulatory efforts – will tell.

Still, whether or not crypto becomes a dominant force in the financial world. Brown believes that we are likely to see more adoption of this innovative technology in other industries in the future.

One of the red flags is FTX collapse

Given the recent collapse of a major crypto exchange FTX. His comments at a hearing involving top US banking regulators come at an especially relevant time.

Sam Bankman-Fried, the founder of the company, was very popular on Capitol Hill before his business failed.

But FTX’s implosion, along with reports of Alameda Research mistreating customer funds, has caused an uproar in Washington and other areas.

“I find the similarities to past financial crises throughout history to be quite troubling,” he says during the committee hearing; The Block reported his comments.

The legislator, who has been critical of crypto in the past. Warns that there is nothing “beneficial” to be gained from investing in speculative cryptocurrencies.

Outlook on the legislation divides Brown states:

“I know that there are a lot of people who have been voicing their concerns about cryptocurrencies, and I agree with them. We don’t need any more crashes in our financial system, so I’m glad to see that skepticism from this panel.”

How does this impact crypto adoption?

While Brown’s comments might be a concern for the cryptocurrency community, overall it is not surprising.

The U.S. government has been heavily scrutinizing the industry and even launching investigations into digital asset trading platforms in recent times. Likely as part of its efforts to quell money laundering and other financial crimes that are being facilitated through crypto.

While crypto enthusiasts will likely view Brown’s comments and the stance of other members of Congress as an indication that; their efforts will continue to be stymied in the years ahead.

Others may argue that traditional finance is fundamentally incompatible with cryptocurrencies. And thus lawmakers would be wise to embrace these new technologies rather than attempt to mitigate them.

However, the biggest challenge facing cryptocurrency right now remains the lack of adoption by Wall Street firms. Who are still wary of getting involved with unregulated assets that trade on obscure exchanges with low volume.

Issues around custody remain unsolved too since cryptocurrency is volatile, and there’s a risk of loss if hot wallets get hacked. This could keep on acting as an impediment to widespread crypto adoption until these issues are resolved.

Conclusion

Despite the rise of cryptocurrency and rapid increase in trading volumes on exchanges like Binance this year. There’s still a long way to go before crypto is accepted by mainstream financial institutions as an asset class.

Though improved regulation and security measures are helping pave way for wider adoption. Wall Street firms remain hesitant due to concerns about volatility and lack of custodial solutions.