Key Insights:
Along with Gary Gensler, Janet Yellen appears to have changed her stance from being anti-crypto to someone who wants tighter regulations.
In her statement in front of the U.S. House Committee on Financial Services, Janet Yellen said that she is concerned about the vulnerability that emerges from crypto assets and their price volatility.
As a member of the US Treasury, she noted that crypto companies fail to comply with traditional regulations, and hence she feels, new laws appear to be critically important.
However, that's not the end. The US economy is currently sitting in a very delicate situation where due to high debt and inflation, there is a high risk of people ditching the dollar.
From her statements it may appear that her demand is mostly due to the failures within the crypto markets. However, there are a few hidden issues on why the Secretary of Dept of Treasure needs strong crypto laws.
The high US debt does not allow for issuing of cryptocurrencies, since in one form or another, cryptos do increase the monetary supply in an economy.
A video by CNBC highlights comments from Georgetown University's Psaros Center where they list the current state of the US economy as a major reason for crypto regulations.
The US Debt issue is currently forcing the its economy to restrict the monetary supply within itself. The debt on the US economy has already exceeded its GDP($28 trillion) and now stands at $34 trillion. This has been scaring economists, banks, businesses and every other US citizen that knows what a Dollar collapse might look like.
In the 1970s as similar situation of high debt led to stagflation.
This is a situation where there is high inflation as well as low economic growth. The dilemma of this situation is that the government cannot do much to help its people. If it prints more money to boost the economy, there is a risk for super-inflation. If it reduces inflation, there is a risk of economic recession, pushing more people into poverty.
In such a delicate situation, any bank-run or any shift in the general perception in favour of crypto can dismantle the dominance of US Dollar in everyday lives.
FTX was perhaps the ugliest collapse in the history of crypto markets. The bankruptcy caused $8 billion in direct losses. The lack of compliance in the company was a major reason for its collapse and hence it is expected that such companies might be even more tightly regulated in the future.
After the collapse of FTX in Nov 2022, Janet Yellen was quick to demand stringent laws to provide such incidents in the future.
The MICA laws in Europe has made compliance more stricter in the European Union. The USA being closely linked to the EU, might also follow the same footsteps.
Janet Yellen understands that crypto bans do not work. Cryptocurrencies, especially the more robust ones like Bitcoin and Monero have been designed to withstand such harsh regulations. The evidence can be seen in China where despite blanket bans, the no of crypto transactions are still at record levels.
Data shared by Reuters shows that despite bans and crackdowns, Chinese crypto transactions stood at a yearly level of $86.4 billion.
This why Janet Yellen's statements of a strong global crypto regulation was seen time after time since G20 Meet in India in 2023. The Indian Finance Minister, Nirmala Sitharaman had also asked for regulations where multiple countries are on the same page.
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