US regulators issued first ever warning regarding Crypto risk

Key Takeaways:

• In a joint statement, US regulators have warned banks for the first time about the dangers posed by the cryptocurrency market.
• It was the second-largest cryptocurrency exchange in the world, and through it, millions of people entered the market for digital assets.

US regulators have issued a warning to banks about the risks associated with the cryptocurrency market for the first time in a joint statement.

The watchdogs warned financial institutions to watch out for potential fraud, legal uncertainty, and deceptive statements made by companies in digital assets.

Banks were also warned about the industry’s “contagion risk.”

It happened just two months just after the collapse of the trading platform FTX rocked the cryptocurrency sector.

Federal Deposit Insurance Corporation, The US Federal Reserve, and also Office of the Comptroller of the Currency stated in a joint statement that they were closely observing the cryptocurrency activities of banking institutions.

According to the statement, “the past year’s events have been characterised by significant volatility and also the exposure of vulnerabilities in the crypto-asset sector.”

The regulators added that it was “highly likely” that issuing or holding crypto tokens kept on open, decentralised networks would be at odds with safe and sound banking practices.

Additionally, banks were urged to take action to stop issues with the digital asset market from affecting the rest of the financial system.

It continued, “Risks associated with the crypto asset sector that cannot be controlled or mitigated mustn’t move to the banking system.”

The announcement on Tuesday comes after US financial industry watchdogs had been reluctant for months to issue consistent guidelines on cryptocurrencies, despite banks’ requests for clearer guidance from regulators.

FTX shock

The November collapse of FTX shook the cryptocurrency market.

Millions of people entered the digital assets market through it, the second-largest cryptocurrency exchange in the world.

Sam Bankman-Fried, the former CEO of FTX, formally refuted allegations that he had defrauded investors and customers on Tuesday.

In a US court, he entered a not-guilty plea to charges that he used client deposits at FTX to support his other business, Alameda Research, as well as to purchase real estate and give to political campaigns.

Two of Mr Bankman-closest Fried’s associates have already entered guilty pleas and are helping with the probe, which has shaken the whole cryptocurrency market.

One of the most notable individuals in the industry, Mr Bankman-Fried was well-known for his political connections, celebrity endorsements, and bailouts of other struggling businesses.

We have charged him with “erecting a house of cards on a foundation of deceit while telling investors that it was among the safest buildings in crypto,” according to the US.