The crypto industry needs tighter regulation as the collapse of the digital asset market is evidence of “serious vulnerabilities” in the industry. The Vice President announced this fed Lael Brainard at the Bank of England conference, according to the Financial Times.

According to him, cryptocurrencies do not yet threaten financial stability due to the relatively small size of the market and its weak relationship with the classical economic system. Brainard also added that regulators must provide a regulatory framework to protect investors.

“It turns out that although the crypto-financial system is opposed to the classical system, it is exposed to the same risks we are familiar with in traditional finance. […]. “It is important for the regulatory environment to cover cryptocurrencies as we work to ensure financial stability,” he said.

Brainard was skeptical that Bitcoin was a hedge against inflation. The vice president noted that cryptocurrencies are highly correlated with high-risk assets.

The official also said that regulators should pay special attention to stablecoins. To him, the collapse of the Terra ecosystem resembles a classic example of a banking panic.

He stressed that “stablecoins” are extremely vulnerable to such crises. As an example, Brainard cited the May outflow of USDT from Tether.

In June 2022, Fed Chairman Jerome Powell said that amid market volatility, the institution is watching cryptocurrencies closely. He noted that the sector has not yet had a significant impact on the macroeconomics.

Recall that in May, Michael Barr, who ran for the post of vice chairman of the Fed, called for the development of a regulatory framework to regulate stablecoins.

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