The collapse of FTX has brought many renewed calls for crypto regulation. That is precisely why this is a time for caution.
and the charges against Sam Bankman-Fried have brought many renewed calls for crypto regulation, from both commentators and legislators. That is precisely why this is a time for caution. No matter how strong the temptation, we should not overregulate.
Still, that second factor — the possibility of crypto risk and the fear that it will become increasingly intertwined with the mainstream banking system — keeps regulators up at night. At this point, however, it is highly unlikely that many banks or commercial lenders are seeking more integration with potentially leveraged crypto exchanges.
Crypto regulation is not easy to do well. If crypto institutions are treated like regular depository institutions, requiring heavy layers of capital and lots of legal staffing, crypto innovation is likely to dwindle. Such innovation has been more the province of eccentric geniuses than of mainstream regulated institutions. It is hard to imagine Satoshi Nakamoto or Vitalik Buterin at Goldman Sachs.
Neither academic research nor market experience offers clear answers. With systemic risk currently low, perhaps it is better to wait and learn more before moving ahead with regulation.
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