CFTC commissioner compared crypto investments to buying lottery tickets

What’s new? US Commodity Futures Trading Commission (CFTC) Commissioner Caroline Pham has compared investing in cryptocurrencies to buying lottery tickets. She said this in the wake of the recent collapse of the Terra (LUNA) blockchain ecosystem. According to Pham, the project was a tragedy for the entire crypto market. The collapse of the rate of the algorithmic stablecoin TerraUSD (UST) is further proof of the return of “shadow” banking, she believes. The commissioner explained that the organizers of most cryptocurrency projects do not disclose detailed information to investors, who hope “that they’re guaranteed to strike it rich.” Pham said this in an interview with CNBC.

CNBC’s interview

What else did the commissioner say? According to Pham, the ambiguity around stablecoins needs to be resolved, to determine whether centralized and algorithmic stablecoins can be considered derivatives. Pham summed up that the collapse of Terra should be a reason to introduce regulation of cryptocurrencies as soon as possible. Speaking about this, the commissioner referred to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was passed in 2010 to reduce risks to the financial system after the 2008-2009 crisis.

What happened to Terra? UST began losing its peg to the US dollar on May 8, with its rate dropping to almost zero in the following days, as did the price of the LUNA token that backs it. Three weeks later, developers, with community support, launched Terra 2.0, a blockchain with no shared history with the old network.

After the collapse of the rates, the US Securities and Exchange Commission (SEC) said that it would tighten the regulation of stablecoins. On May 18, SEC chief Gary Gensler noted that the “turmoil” in the digital assets market would not stop following Terra’s collapse. On May 19, G7 countries called to accelerate the “development and implementation of consistent and comprehensive regulation” of cryptocurrencies. On May 21, European Central Bank (ECB) President Christine Lagarde said that cryptocurrencies were not secured and should be regulated to protect investors from speculation.

On May 23, International Monetary Fund (IMF) Executive Director Kristalina Georgieva said that stablecoins that were not backed by assets were a pyramid scheme.