The U.S. Congress Joint Economic Committee (JEC) issued a report on the volatile digital asset market and the need for further protections to mitigate risks to investors and the U.S. financial system.
The volatile digital asset market saw it reach $3 trillion in market capitalization in 2021, but since then, it has lost over $2 trillion in total value due to several factors, including rising interest rates and cryptocurrency scandals that have hurt investor confidence. The most notable of these scandals was the collapse of the third-largest cryptocurrency exchange, FTX, after it engaged in risky financial bets with its customers’ deposits, leading to the indictment of its founder, Sam Bankman-Fried.
“The last two years have seen wild swings in digital asset values that have left too many everyday investors high and dry. Regular people who were trying to save for retirement, buy a house or pay for their child’s education have had the rug pulled out from under them. Decades of savings were erased virtually overnight,” U.S. Rep. Don Beyer (D-VA), chairman of the JEC, said.
The report said the draw of building financial wealth outside the banking system highlights the need for further federal action to protect the U.S. economy and investors.
“Commonsense regulatory actions to establish consumer protections and market transparency—what we expect from financial assets—are necessary to protect investors and prevent widespread destabilization. I am thankful that our financial regulations worked to ensure the recent collapse in the digital asset market did not also cause economy-wide pain and instability. While federal investigations into criminal activity are ongoing, I hope to continue the work that is necessary to protect consumers and our broader financial system,” Beyer said.
Among the key findings, the report cited that 2022 set records for the scale of digital asset fraud, hacks, scams, and abuse. More than $3 billion was lost in hacks of digital asset platforms in 2022, and October was the worst-ever month for crypto-related crimes, with over $700 million in losses reported. It also found that newer investors with less financial cushion were hit the hardest by the drop in digital asset prices. It concludes that recent activity has revealed significant risks to broader financial stability as the digital asset market has grown and become more interconnected.
Beyer introduced the Digital Asset Market Structure and Investor Protection Act, establishing clearer regulatory jurisdictions for the SEC and CFTC over different parts of the digital asset landscape while increasing transparency and strengthening disclosure rules.