IMF Director of monetary and capital markets, Tobias Adrian, says there is a “fundamental clash” between the cryptocurrency industry and financial institutions. According to Adrian, institutions must be able to verify that what is happening is legitimate. However, he asserted that it is difficult in a system where transactions are anonymous.
While speaking to Yahoo Finance, Adrian stated,
“I think there is like, a realization that some of the structures that were out there don’t work. A number of products just imploded, right, that they didn’t work, was a surprise valuations. And cryptos went down. And so that is one fundamental challenge.”
The second fundamental challenge pointed out by the IMF director, is the changing regulatory landscape. Banks that hold unbacked cryptocurrency assets must comply with capital standards made by the Basel Committee. Adrian added that they are ‘very high standards’. Thirdly, Adrian pointed to the coming of stablecoin regulations. The industry is in the dark about what stablecoin regulations will look like.
He also made a statement about the Fed’s decision to deny the application of the cryptocurrency bank Custodia. He claimed that the denial limits the risk exposure for the banks, especially when managing the risks is extremely difficult.
No investor protection in the cryptocurrency sector?
Adrian thinks there is a minimal investor and prudential protection in the cryptocurrency industry. Furthermore, he said there is little assurance regarding about how these firms handle customer assets. The IMF official also noted that several firms operate from foreign jurisdictions. Therefore, these entities might not have the same level of protection as a firm based in the U.S.
Moreover, Adrian thinks that unless this anti-money laundering and terrorist funding issue is resolved, regulators won’t feel at peace. Banks invest a lot of money in ensuring the legitimacy of their transactions. And it simply runs counter to how cryptocurrency was intended, Adrian said.
The International Monetary Fund (IMF) criticized El Salvador in a statement on the country’s economy last week for its decision to make Bitcoin (BTC) legal tender. The US, on the other hand, is looking to swiftly enforce crypto regulations. Meanwhile, investors are gripped by fears of regulatory changes.