US Senator calls crypto the ‘new shadow bank’

    07 Sep 2021

    Senator Elizabeth Warren, one of the most vocal cryptocurrency skeptics in the US government, has called the cryptocurrency industry the “new shadow bank” and said that it’s “worth considering” banning US banks from holding the reserves to back private stablecoins.

    On Sunday, Warren told the New York Times that the cryptocurrency industry offers “many of the same services” as shadow banks but still lacks “consumer protections or financial stability that back up the traditional system.”

    The Times story focused in large part on BlockFi, the venture-backed crypto lending startup that has drawn the attention of numerous state regulators in the U.S. as part of a broader “scrambling” to catch up on the evolving advance of crypto startups into banking-like services.

    “Crypto is the new shadow bank. It provides many of the same services, but without the consumer protections or financial stability that back up the traditional system,” Warren said in the interview. “It’s like spinning straw into gold.”

    Warren also expressed concerns over the rapidly growing market for stablecoins, a type of cryptocurrency pegged to that of other assets, such as the US dollar, the euro, or gold.

    She raised the idea of “banning banks in the United States from holding cash deposits backing up stablecoins, which could effectively end the surging market.”

    The latest remarks of the US senator come amid global financial regulators pay more attention to stablecoins. According to recent reports, the Ontario Securities Commission has recently banned USDT trading services by Canada’s first two registered crypto exchanges, Wealthsimple and Coinberry. In mid-July, U.S. Treasury Secretary Janet Yellen called on financial authorities to establish a proper regulatory framework for stablecoins.

    In 2021, the total market cap of stablecoins like Tether (USDT) and USDC Coin (USDC) has surged parabolically, jumping from around $37 billion in January to $123 billion now, according to data from Statista and CoinMarketCap. Large stablecoin accumulations have been widely perceived as an indicator of buying power for cryptocurrencies like Bitcoin, as fiat-pegged stablecoins provide traders with a tool for easily buy and sell crypto on exchanges.

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