Why U.S. Senator Elizabeth Warren Thinks Crypto Is “The New Shadow Bank”

Why U.S. Senator Elizabeth Warren Thinks Crypto Is “The New Shadow Bank”

Crypto regulation has been a hot topic lately in the United States. The Infrastructure Bill has been one of the most talked-about bills in the crypto industry. Senators have usually taken a stand for or against favorable crypto regulations. And for the most part, the House has been divided on what should be done with regards to cryptocurrencies. The United States Senator Elizabeth Warren has been vocal about her opposition to cryptocurrencies.

Most recently, the rise of decentralized finance (DeFi) has raised a lot of issues. These protocols give investors instant access to services that they would usually have to go through traditional outlets like banks to get. While offering better returns on them. Investors can get access to lending and yield accounts in real-time. Thus putting decentralized finance in direct competition with banks. But yes, they remain an unregulated market.

Crypto Is The New Shadow Bank

In an interview with the New York Times, Senator Warren continues her public opposition to the crypto market. The U.S. senator said, “Crypto is the new shadow bank. 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.”

The unregulated nature of the market has been a cause for concern by lawmakers. Being unregulated means that the investors in these markets are not covered if something was to go wrong with the protocols with which they are trading. So all crypto lost by the investors would not be recovered.

The senator was also concerned at the rate that stablecoins were growing. Since stablecoins are coins backed by fiat currencies, they need to hold a reserve in bank accounts. And Senator Warren expressed over the banks holding the reserves for these digital assets. Saying that it was “worth considering” to ban banks in the United States from providing bank accounts used as reserves for these stablecoins. This “could effectively end the surging market,” said Warren.

The Market Needs Regulation To Survive

Warren is not the only one to call for regulation in the market. SEC Chairman Gary Gensler expressed that the crypto market would need regulation if it was going to survive. Like Warren, Gensler focused more on decentralized finance is not regulated, so there is no trust. The SEC boss urged that crypto trading platforms register with the Securities and Exchange Commission (SEC). Explaining that it would do more good for them to be registered. Gensler warns that if the market does not embrace regulation, then it runs the risk of becoming irrelevant over time.

A difference between Warren and Gensler’s stands remains that while Warren looks to want the eradication of the industry, Gensler wants more regulation in the market. The SEC chairman believes that the activities of decentralized finance platforms fall under the purview of the SEC. As such, they should be registered under the regulator.