Bitcoin remains a dangerous bet despite recent rally

Americans have a high level of uncertainty about crypto. Only 20 percent have ever owned it, according to a nationally representative survey of 3,208 adults conducted by Consumer Reports from June to July 2022. At least 1 in 5 say they don’t know if their friends or family own crypto, if they would use crypto in different ways, or how crypto companies should be regulated. And there is significant public support for crypto regulations. 62 percent of Americans who have heard of crypto say crypto businesses should be regulated in the same way as other financial businesses, according to CR’s survey.

Despite the public’s apparent desire for more clarity, financial regulators are still figuring things out about cryptocurrencies. Are they securities such as shares and bonds, or are they commodities such as gold and oil? Should they continue to trade on unregulated non-bank exchanges (known for their Super Bowl ads featuring stars – like comedian Larry David – saying you don’t really need to understand crypto to invest in it), or should crypto trading be done on highly regulated banking platforms that are largely shut out of the market?

The Securities and Exchange Commission (SEC) and other public regulators are aware of the dangers the current uncertain climate may pose to millions of retail investors who still have billions of dollars tied up in the market – or who may be considering putting their money into it.

In March, the Biden administration issued an order that embarks on a comprehensive approach to regulating cryptocurrency and other digital assets. Then in April, SEC Chairman Gary Gensler said his agency and the Commodity Futures Trading Commission (CFTC) are investigating crypto-regulatory issues. (The SEC regulates securities such as stocks and bonds, and the CFTC regulates commodities such as oil and gold.)

“I have asked staff to consider how best to register and regulate platforms where trading in securities and non-securities are linked. In particular, I have asked staff to work with the CFTC on how we can jointly address such platforms that can trade both crypto-based security tokens and certain commodity tokens, using our respective authorities,” he said.

The banks also want more clarity from regulators and say they want the authorities to hurry up to make rules for how they can be able to participate in the market. In August, the American Banking Association sent a letter to the Biden administration asking for increased efforts to clarify regulations. It says banks are a safer option for investors looking to invest in crypto because they are heavily regulated, but without clearer rules on how to participate, the banking group says its members cannot offer their services effectively.

“The combination of these two approaches – inaction on the one hand to bring into the regulatory perimeter non-bank crypto companies, and limitation on the other of banks’ ability to engage responsibly in the digital asset market – creates an environment that makes nearly impossible for responsible financial innovation to take place in this space, causing it to remain in the Wild West,” wrote Brooke Ybarra, director of the American Bankers Association’s Office of Innovation.

But as banks seek ways to enter the crypto investment market more robustly, senators including Elizabeth Warren and Bernie Sanders have urged the Office of The Comptroller of the Currency to roll back rules issued under the Trump administration that had given them some ability to participate . . The senators say they are concerned that the rules “may have exposed the banking system to unnecessary risk,” citing the recent meltdown.

Acting Comptroller of the Currency Michael Hsu defended the regulator’s move. “I think we’re doing a pretty good job,” he said on Bloomberg. “Look at Exhibit A: A whole bunch of things just happened, and the banking system is in pretty good shape, knock on wood. I think part of that is the actions we’ve taken.”

But until regulators issue clearer regulations, crypto will likely continue to be extremely volatile and risky. And even when regulators issue their new rules, they will undoubtedly have a major impact on the price of digital currencies.

Here are four more reasons to be cautious about investing in cryptocurrency.