On June 30th, we could attend in a hybrid hearing titled: "America on “FIRE”: Will the Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?"
One of the witnesses was Alexis Goldstein who is the director of financial policy at the Open Markets institute where her work focuses on financial regulation and consumer protection. Previously, she worked as a computer programmer at Morgan Stanley in electronic trading and at Merrill Lynch, and Deutsche Bank as a business analyst serving the equity derivatives trading desks
Alexis Goldstein stated that sorts of derivatives aren't currently reported to the Securities and Exchange commission on Form-13f. Banks and regulators alike were entirely in the dark about archaic ghost's positions until excuse her until it blew up the extent of hedge fund and family involvement in cryptocurrencies lives. She believes that congress and regulators should also consider requiring that hedge funds report their cryptocurrency positions on this form. If a majority of hedge funds with billions of dollars in assets under management begin to hold significant positions in crypto, as certain surveys indicate, they are interested in doing it may produce dire risks for systemic for financial systemic risk and may induce future crises as volatile swings in the cryptocurrency markets could lead to things like forced liquidations on their assets. In addition, to hedge funds large too big to fail banks and silicon valley venture capital firms are also a growing presence in crypto vc firms have already invested 17 billion dollars in crypto firms so far this year which is more than three times what they invested in all of 2020. If we combine this with the fact that some cryptocurrencies have a majority of their supply held by a very small number of people it raises concerns around concentration to take one example as of February the top 20 largest Dogecoin addresses held half of the cryptocurrency's entire supply.
In her testimony, she stated that there are also broad investor and consumer protection concerns in cryptocurrency that she has personally observed as a user of crypto exchanges and d5 platforms in traditional financial markets barring a serious liquidity crisis. If someone buys something you can generally assume you can sell it back especially with a stock but on d5 protocols like uniswap and swap anyone can upload a new cryptocurrency token anyone can add a liquidity pool for it. Including malicious actors who design tokens that can be bought but never sold these so-called honey pot tokens are so prevalent that some d5 protocols include an explicit warning about them on their website.
Some crypto investors try to read the smart contracts or code of new coins to look for common pitfalls and avoid scams but this is an extremely high bar for non-programmers. Some of the more concerning areas she has seen in d5 on platforms that offer derivatives.
The current situation reminded her of the over-the-counter (OTC) derivatives marketplace before dot com crash which i worked in as a banker uh in the early in the late 2000s
Goldstein believes that congress should continue to examine if there are regulatory gaps that require new legislation in order to ensure consumer and investor protection in crypto and avoid systemic risk. Regulators should continue to monitor the space and ensure compliance with existing laws
If you are more interested in the hearing you can also watch it on youtube.
https://www.youtube.com/watch?v=WG3N_QcHEcs
