While the collapse of cryptocurrency exchange FTX has spurred many U.S. lawmakers to call for new regulations on the crypto industry, one economist offered a different take on Tuesday.
Stephen Cecchetti, an economist and professor at the Brandeis International Business School, argued against federal regulation for crypto during a debate on that topic hosted by the Brookings Institution, a think tank based in Washington, D.C. He gave five main reasons for his view, starting with one tied to a major Activision Blizzard’s
“First, and the strongest argument, I think, against regulation is about conferring legitimacy,” Cecchetti said.
“I think of a lot of this stuff as being like a video game, and so if I look at an analog, the World of Warcraft has 120 million players, and it has an economy inside of it. Fortunately, no federal financial regulator has responsibility for overseeing the World of Warcraft. And while there’s money involved, I don’t think any of us would call on them to supervise online massive multiplayer games. Like the World of Warcraft, crypto, in my view, does nothing to support the real economy, so legitimizing it is simply going to drain creative resources from productive activities.”
Second, Cecchetti said, the U.S. already has laws and enforcement mechanisms to address “fraud, theft and the facilitation of criminal activity.”
“It’s essential that prosecutors address the misbehavior that is, in my view, the defining feature of the crypto world. They should do this by enforcing existing laws aggressively, and, where appropriate, going after the celebrities that are promoting this stuff,” he said.
Third, the Brandeis professor argued that “new light-touch rules for the crypto world would fuel the migration of financial activity from traditional finance to the less regulated but newly legitimized crypto world.”
Fourth, he said that while some people argue that regulation of crypto is going to promote financial innovation, he doesn’t see it that way.
“So long as regulators promote competition, there’s nothing to prevent traditional intermediaries from investing in new technologies, which they do all the time. And these technologies are reducing costs and improving access,” said Cecchetti, who previously worked as the head of the monetary and economic department at the Bank for International Settlements, which is often described as a central bank for central banks.
Finally, Cecchetti expressed worries about banks
diving into virtual currencies
“Fifth and last, legitimizing crypto is going to encourage banks to purchase crypto assets directly and to lend against them as collateral. Imagine where we would be if leveraged financial intermediaries had been holding crypto in November of 2021 before the plunge in value,” he said.
He also talked about keeping crypto on another planet, so to speak.
“If virtually all of the transactions in the crypto world remain inside of the crypto world without links to the real economy, it would be as if this stuff was going on on Mars, and it would leave the traditional financial system unaffected,” he said.
“That should be our goal. So my conclusion is that creating a separate federal financial regulatory regime for crypto would make the system less, not more, safe.”
Peter Conti-Brown, a financial historian, legal expert and professor at the University of Pennsylvania’s Wharton School, opposed Cecchetti in Tuesday’s debate, arguing that federal regulators have a lot more work to do with crypto.
“The last point that Steve makes I agree with — it’s not time for us to have a crypto-specific regulatory regime. But that’s not the debate. The debate is whether we should regulate crypto, and I’m going to playfully suggest that Steve conceded the debate,” Conti-Brown said after hearing Cecchetti’s five points.
“Steve, you said that we should aggressively enforce existing laws. The problem is which laws will be enforced against crypto, and there are legal, definitional problems that are non-trivial.”
Democratic Sen. Elizabeth Warren of Massachusetts is among the lawmakers who has called for tougher crypto rules in recent weeks.
Related: CFTC chief calls for ‘comprehensive’ rules to head off another FTX collapse
And see: ‘Crypto is a garden of snakes,’ Democratic congressman says as Congress probes FTX fallout
Plus: ‘FTX and cryptocurrencies are not the same thing,’ says Republican defender. ‘The code committed no crime.’