Ether has hugely outperformed bitcoin since each cryptocurrencies formed a bottom in June 2022. Ether’s superior gains have come as investors anticipate a serious upgrade to the ethereum blockchain called “the merge.”
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U.S. banking regulators warned financial institutions on Tuesday that coping with cryptocurrency exposes them to an array of risks, including scams and fraud.
“The events of the past yr have been marked by significant volatility and the exposure of vulnerabilities within the crypto-asset sector,” the regulators said in a joint statement from the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. The comments come just weeks after the spectacular collapse of crypto exchange FTX.
The regulators said the risks include: “fraud and scams amongst crypto-asset sector participants” and “contagion risk inside the crypto-asset sector resulting from interconnections amongst certain crypto-asset participants.”
In the course of the crypto boom, when financial players looked as if it would announce a recent crypto partnership on a weekly basis, bank executives said they needed further guidance from regulators before dealing more directly with bitcoin and other cryptocurrencies in retail and institutional trading businesses.
Now, about two months after the bankruptcy filing of FTX, the industry has been exposed as rife with poor risk management, interconnected risks and outright fraud.
While the statement indicated that regulators were still assessing how banks could adopt crypto while adhering to their various mandates for consumer protection and anti-money laundering, they looked as if it would give a clue as to which direction they were headed in.
“Based on the agencies’ current understanding and experience up to now, the agencies imagine that issuing or holding as principal crypto-assets which are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is very prone to be inconsistent with protected and sound banking practices,” the regulators said.
Additionally they said that they’ve “significant safety and soundness concerns” with banks that concentrate on crypto clients or which have “concentrated exposures” to the sector.
Traditional banks have largely sidestepped the crypto meltdown, unlike the 2008 financial crisis by which they played a central role. One exception has been Silvergate Capital, whose shares have been battered prior to now yr.