Acting Comptroller of the Currency Michael Hsu said this week that hype is a serious risk for cryptocurrencies and likened certain crypto transactions to Ponzi schemes, warning that the crypto space is very dangerous for investors of modest means.
The comments come after the collapse of stablecoin TerraUSD (UST-USD) on May 9 reverberated through the cryptocurrency market.
“The recent collapse of the TerraUSD stablecoin and associated sell-off in crypto markets has shown that hype-driven growth can lead to bubbles, harm consumers, and crowd out productive innovation,” Hsu said in a speech Tuesday before the Digital Chamber of Commerce.
“What has become clearer to me … is that these developments are indicative of the crypto economy’s dependence on hype…the recent events in crypto should serve as a wake-up call and an opportunity to reset and to recalibrate the problems the industry is trying to solve,” he added.
Hsu says that contagion risks within crypto are real, underscoring that the collapse of algorithmic stablecoin Terra spread to the largest stablecoin, Tether (USDT-USD), and to the broader crypto ecosystem.
Still, Hsu was encouraged that the cryptocurrency rout didn’t seem to hurt traditional banks. He said the OCC’s work to require banks to ask permission to engage in crypto activities has helped limit exposure.
“No banks are under stress or even rumored to be under stress due to crypto exposure,” Hsu said.
