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- Cryptocurrency services are “spinning straw into gold,” Sen. Elizabeth Warren told the New York Times.
- They provide many of the same services as shadow banks, but without consumer protections, the Massachusetts Democrat said.
- Warren raised the idea of banning US banks from holding cash deposits backing up stablecoins.
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Sen. Elizabeth Warren told the New York Times that cryptocurrency services are “spinning straw into gold,” as she criticized the way they operate outside financial industry rules.
“Crypto is the new shadow bank,” she said, cited in a report published Sunday. “It provides many of the same services, but without the consumer protections or financial stability that back up the traditional system.”
“It’s like spinning straw into gold,” Warren added.
Shadow banking refers to transaction-based activities that take place outside the traditional banking sector, and therefore outside the realm of regulatory oversight. The system was a factor in the subprime mortgage crisis of 2007-08 that led to the global financial crisis.
Warren’s comments featured in an article on New Jersey-based crypto startup BlockFi’s ambitions to serve crypto enthusiasts in the same way a Wall Street firm serves traditional finance customers.
The Democratic senator from Massachusetts also brought up the prospect of banning US banks from holding cash deposits backing up stablecoins – an option that could “effectively end the surging market.”
Warren has taken an anti-crypto stance for a while now, and she has called on Treasury Secretary Janet Yellen to bring in tougher rules for related industries. The lawmaker’s main concern is that retail investors could get hurt in volatile and unregulated markets like those for crypto assets.
“There are a number of ways that our financial system has become exposed to these assets to such an extent that material distress in the cryptocurrency market could spread throughout the financial sector,” she wrote in a July letter to Yellen.
Gary Gensler, the chair of the Securities and Exchange Commission, has taken a more open approach to cryptocurrencies. But he has said they can become mainstream only if regulators lay out clear rules around the industry. Gensler says he is neutral, or even intrigued, by the technology that cryptocurrencies run on, but isn’t neutral on investor protection.