Fed's Waller says better regulation of crypto markets

The Federal Reserve Governor Christopher Waller said on Friday that better regulation of the fast-growing world of digital assets is needed not to keep rich people from losing money but for the sake of everyone else.

Waller said that the main issue in cryptocurrencies regulation isn't how to protect sophisticated investors, but how to protect the rest of us in remarks prepared for delivery to the SNB-CIF Conference on Cryptoassets and Financial Innovation in Zurich.

He said that the aim of regulation would be to protect society from the often-irresistible pressure to socialize the losses of investors with limited resources, and to limit financial stress. The last five years, cryptocurrencies have proliferated from a niche market valued at around $14 billion to a $3 trillion industry.

Recent high-profile collapses in the criptocurrency world have prompted calls for better guardrails for what is essentially an unregulated market. Their popularity is one of the reasons why they are so popular.

The Fed survey showed that 12 percent of US adults used or held cryptocurrencies in the past year, mostly for investment purposes. The number of users of cryptocurrencies is even higher, according to other surveys.

In March, President Joe Biden directed the Treasury and other agencies to look at how best to regulate the industry, even as central banks around the world - including the Fed - looked into the possibility of creating a central-bank backed digital currency.

Waller is among those at the Fed who say they don't see a reason for issuing a central bank digital currency that would compete with privately backed digital currencies.

On Friday he laid out his reasoning for why privately backed currencies need better oversight despite arguments from inside the industry that the markets are better left to their own devices to foster innovation.