Don’t Let the Crypto Winter Go to Waste

tech.hindustantimes.com:

The cryptocurrency market has granted US policy makers the opportunity of a lifetime. Less than a year ago, it was on the verge of becoming a systemic threat, gathering disciples, leverage and political clout faster than regulators could get a grip. Then, the danger miraculously dissipated: The market imploded before reaching critical mass, entering the “crypto winter” that persists to this day.

This reprieve might not last long. Policy makers should act now to impose some much-needed rules on this market.

The problem areas are clear. No. 1 is stablecoins, or digital tokens that purport to be worth a dollar and are used by speculators to gain leverage or to park funds between bets. At their peak, such coins had attracted more than $160 billion, which their issuers invested in assets ranging from corporate debt to Bitcoin to nothing at all. The danger is that a sudden loss of confidence could trigger an exodus, as happened with the Terra stablecoin in May. The more regular assets the issuers hold, the greater the chances of broader disruption — for example, in markets that real-world companies rely on to make payroll and raise working capital.

Another threat arises if commercial banks get exposed to crypto, either directly or via lending to companies and hedge funds. If, for example, major banks had been among the creditors of now-bankrupt entities Celsius or Three Arrows Capital, which at their peak had tens of billions of dollars in combined liabilities, the crypto meltdown could've done much broader damage. Luckily, regulators appear to have averted such an outcome and remain vigilant, though they've yet to adopt any formal rules.

Beyond that, myriad digital tokens and trading venues — including big exchanges