Comparing investment in crypto assets to baseball cards, as far as the relative value of both goes, a Federal Reserve Board governor was clear Friday about his view: he wouldn’t invest in either. But others could “go for it.”
Just not necessarily banks, he indicated.
“To me, a crypto-asset is nothing more than a speculative asset, like a baseball card,” Fed Gov. Christopher Waller said in remarks to the Global Interdependence Center Conference in La Jolla, Calif. “If people believe others will buy it from them in the future at a positive price, then it will trade at a positive price today. If not, its price will go to zero. If people want to hold such an asset, then go for it.
“I wouldn’t do it, but I don’t collect baseball cards, either. However, if you buy crypto-assets and the price goes to zero at some point, please don’t be surprised and don’t expect taxpayers to socialize your losses,” he said.
Waller observed that crypto-assets are risky and many firms dealing in them are in their infancy. He cited no opinion on whether people take on risky investments or engage in risky business ventures.
But for banks, he indicated, it’s different. ”Banks and other financial intermediaries must engage in any activity they do in a safe and sound manner,” Waller said. “I’m supportive of prudent innovation in the financial system, while at the same time concerned about banks engaging in activities that present a heightened risk of fraud and scams, legal uncertainties, and the prevalence of inaccurate and misleading financial disclosures.”
He said a bank engaging with crypto customers would have to be very clear about the customers’ business models, risk-management systems, and corporate governance structures. All in order, he said, to ensure that the bank “is not left holding the bag if there is a crypto meltdown.” Banks considering engaging in crypto-asset-related activities face a critical task to meet the “know your customer” (under Treasury’s Financial Crimes Enforcement Network [FinCEN] rules) and anti-money laundering (AML) requirements, which, he said, banks “in no way are allowed to ignore.”
Waller asserted that so far, “spillovers” from the crypto industry to other parts of the financial system have been limited. However, he said, “it is important that we keep the various parts of the crypto ecosystem distinct in our minds as the debate about if and how to regulate crypto rolls on. Doing so will ensure we do not unduly limit the development and potential future uses of the positive features of the crypto ecosystem.”
Federal Reserve Board Gov. Christopher J. Waller: Thoughts on the Crypto Ecosystem