Digital Assets: Traditional Markets Could Suffer Contagion From (Un)Stablecoins (SEC Chair Gensler)

May 20, 2022 | Digital Assets, News
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More tokens will fail, fears Gensler, and that could hurt confidence in traditional markets.

The crypto world was dealt a body blow by the collapse of the TerraUSD (UST) stablecoin earlier this month. The Terra meltdown is now being referred as crypto’s “Lehman moment.” Worse, other stablecoins and protocols seem to have been dragged into Terra’s aftermath and appear to be in danger of losing their dollar pegs, notably Deus Finance’s DEI coin, currently tottering at $0.5873. These events have triggered comments from SEC Chair Gary Gensler.

 

At a House Appropriations Committee panel hearing on Wednesday Gensler warned that investors could lose money in the crypto markets if more stablecoins are rendered unstable.

“I think a lot of these tokens will fail,” he told reporters on Wednesday. “I fear that in crypto…there’s going to be a lot of people hurt, and that will undermine some of the confidence in markets and trust in markets.” (Fortune)

Last week, US Treasury Secretary Janet Yellen also expressed fears that reverberations from crypto panic selloffs could spread to the mainline financial markets in a contagion effect.

“Digital assets may present risks to the financial system and increased and coordinated regulatory attention is necessary,” she told the Senate banking committee.

Meanwhile, the SEC Chair Gensler may make good on his threat to regulate crypto exchanges, given his view that most cryptos fall within the regulatory definition of “securities.”

“They should move towards getting registered or, you know, we’re going to be the cop on the beat, and we’re going to bring the enforcement actions.”

Related Story: Bitcoin Looking Weak At $32,670; May Test $29K; Terra Loses Peg

Image Credit of Luna Logo: Wikimedia Commons

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