Former U.S. Treasury Secretary Lawrence Summers sees regulations as a potential tailwind for the growth of the digital asset industry.
“Regulation often is resisted by industry, but it often eventually becomes a substantial enabler for industry,” Summers told an audience at Circle’s Converge22 conference in San Francisco. He added that crypto firms seeking lighter regulation in the U.S. should be careful what they wish for.
But Summers, who has advised fintech firms including crypto investment firm Digital Currency Group (DCG), said that he hopes regulators don’t quash digital assets. “We are better off recognizing a more variable ecology and is regulated in different ways,” he said.
The former Treasury secretary said that there need to be rules in place for stablecoins to be properly backed, which U.S. legislators and regulators are already trying to put in place. But he said that does not necessarily mean that issuers of stablecoins need to be banks.
Circle, the crypto firm behind stablecoin USDC, said in 2021 that it would plot out a path to become a "a full-reserve national commercial bank."
As for the broader economic picture, Summers believes the U.S. economy will enter into a recession in the near term, as a result of the Federal Reserve needing to quickly raise interest rates to combat decades-high inflation levels.
“The Fed was failing the course nine months ago,” he said. The coming recession will not look like the financial crisis of 2008, but unemployment could reach 6%,” Summers said. “The economy a year from now will be a good deal weaker than it is now.”
Summers agreed with current conventional wisdom that a strengthened dollar, resulting from more increased purchases of U.S. debt due to higher interest rates and the safety of Treasury bonds, could weaken other economies and roil currency markets.
“Europe is a museum, Japan is a nursing home, China is a jail, and bitcoin is an experiment,” he said.
Recent central bank rate hikes, as well as overall economic concerns, have hit digital assets hard, testing their capacity as hedges against inflation, and leading to "crypto winter." Summers said he hoped the industry gleans lessons from its current down cycle.
“The system needs to be robust to bad outcomes or else bad outcomes become a self-fulfilling prophecy,” he said
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