Yellen from the US Treasury Department says cryptocurrencies need to be regulated

By David Lawder

NEW YORK (Reuters) – US Treasury Secretary Janet Yellen said on Wednesday that the recent turmoil in the cryptocurrency market has not spilled over into the banking sector, but she remained skeptical about the industry and believed it needed proper regulation.

Yellen, speaking at an event hosted by the New York Times DealBook, said it was important to ensure crypto assets had adequate consumer protections.

“I was and remain quite skeptical,” she said.

She added that it is important to stay open to financial innovations, especially if they could lower the cost of cross-border transactions and help improve financial inclusion, but said that was not the intent of recent developments.

“I think everything we’ve been through in the past few weeks, but also earlier, says this is an industry that really needs proper regulation. And it doesn’t,” she said.

Cryptocurrency exchange FTX, which filed for bankruptcy in Delaware on Nov. 11, said it owed nearly $3.1 billion to its top 50 creditors. The high-profile crypto explosion left billions of dollars in total losses to an estimated 1 million customers and other investors.

Yellen told DealBook that the United States is in talks with allies about regulating cryptocurrencies involved and the Treasury also prepared a number of reports of “significant” concerns.

A top priority, she said, would be to protect client assets and segregate those assets to avoid problems like FTX’s.

The cryptocurrency crisis is a “Lehman moment” for the sector, Yellen said, citing the bankruptcy of investment bank Lehman Brothers in 2008, which triggered a huge downturn in stock markets and led to a $700 billion bailout of financial players led by the US government.

“The good thing about an explosion like the one we saw is that it didn’t spill over into the banking sector. Banking regulators have been very wary of crypto,” she said.

“It’s a Lehman moment within crypto, and crypto is big enough that we’ve suffered significant damage from investors.”

(Reporting by David Lawder and Andrea Shalal in Washington; Editing by Matthew Lewis)