Cryptocurrency crash prompts Yellen to call for new regulation

In response to the recent sharp drop in the value of cryptocurrencies, Treasury Secretary Janet Yellen said Thursday that additional federal regulation is needed to respond to a wave of speculative investment in a currency whose secrecy is a key part of its appeal. .

“We really need a regulatory framework to protect against risks,” Yellen said of cryptocurrencies called stablecoins, during a House committee hearing on Thursday. Noting the rapid rise in the use of digital assets, she added, “Really, we need a comprehensive framework so that there are no gaps in regulation.”

A stablecoin is a type of cryptocurrency that is pegged to a specific value, usually the dollar, another currency, or gold. Its parity with the dollar is what makes it theoretically stable. However, the volatility in the cryptocurrency market this week has challenged this premise.

“We made a real show of risk,” she said, referring to the TerraUSD crash that began on Monday.

Running – or selling by a large number of owners – the Terra stablecoin reduced its value from about $8 to less than 30 cents.

The Federal Reserve’s report was released on Monday Shows how stable coins are prone to run.

“Terra broke the dollar, and this morning and yesterday, the largest stablecoin Tether broke the dollar as well,” referring to another symbol that has fallen below its dollar peg this week.

Yellen was also questioned at the hearing about the root cause of inflation, which has driven up prices, and how the administration plans to combat rising energy, housing and food costs.

She said management is doing what it can to address supply chain issues and other contributors to inflation.

“We have a really strong and good job market, we have home budgets in good shape,” as well as a strong banking sector, Yellen said.

“All of these things indicate that the Fed has a path to lower inflation without causing a recession,” she said.