Acting Comptroller of the Currency Michael Hsu is doubling down on the bank regulator's "careful and cautious" approach to crypto in the wake of the TerraUSD collapse, though he says he's come to see the potential in crypto.
In his remarks at DC Blockchain Summit 2022, Hsu noted that despite the half a trillion in market capitalization lost in the TerraUSD de-pegging, "there has been no contagion from cryptocurrencies to traditional banking and finance."
"The resilience of the traditional banking system to the recent events in crypto is not an accident," he said. "Rather, it is due, at least in part, to federal bank regulators’ continued and intentional
emphasis on safety and soundness and consumer protection."
That includes last year's interpretive letter from the Office of the Comptroller of the Currency, which warned national banks that crypto activities are only permitted with compliance to applicable consumer protection laws. The Federal Depository Insurance Corporation published a similar sentiment this year.
"I believe that these reminders have contributed to the safety and soundness of the banking system despite the heightened volatility and recent turmoil in the crypto markets," said Hsu.
Hsu has long been a crypto skeptic, and he acknowledged his stance in today's speech. Though he said he's "come to see its [crypto's] potential and understand why there is excitement around it," he reiterated his concerns, saying recent events appear to be the result of the crypto economy's dependence on "hype."
"The industry has grown too fast, however, and suffers from a hype-based, 'shoot, ready, aim' approach to innovation and value creation," he said. "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."
Those problems include a highly fragmented system, with an abundance of chains and cross-chain bridges that are prone to hacks, according to Hsu. There are also risks of "contagion" shown by Tether's struggles during the Terra fallout.
"Such contagion is familiar to bank regulators and students of
money-like instruments — prudential regulation can help," said Hsu.
Hsu also argued that custody and ownership rights are underdeveloped for the size, scope and ambitions of the industry. Some of these areas include the ownership rights of non-fungible tokens and standards for the ownership and custody of digital assets with sufficient consumer protections, according to Hsu.
Until those problems are solved, Hsu said the OCC "will continue to take a careful and cautious approach to crypto in order to ensure that the national banking system is safe, sound, and fair."