Crypto leaves Americans worried for their wallets

BY ABBEY TOLER Staff Writer

With the crash of the FTX Market in November 2022, and the ongoing bank crises which began in March, there is a growing distrust in multiple aspects of the financial market in the United States, leaving many Americans fearful that their funds are not safe.

Beginning in March, the U.S. has continued to experience the worst bank collapse seen since the 2008 financial crisis, affecting banks including Silvergate Bank, Silicon Valley Bank and Signature Bank.

The pending liquidation of Silvergate Capital has all eyes on the market. Several in-progress lawsuits, including the suit put forth by New York State Attorney General Letitia James against the cryptocurrency exchange KuCoin has raised even more attention.

According to Forbes, Bitcoin is down 11% while Ethereum is down by more than 9%. These figures highlight that even the major players in the game are feeling the consequences.

“The way that the government came to the rescue and made all the depositors whole shows that they have the power of those regulators to calm down markets and to protect consumers,” said Lisa Grobar, a CSULB professor of economics. “Nobody with a bank account lost money, only the shareholders who own the bank lost money in the case of the two banks that failed recently.”

Grobar drew a comparison to the crash of FTX in late 2022 but noted that those investors were not made whole again, unlike the case with the March bank crashes, where the average person did not actually lose any money.

“FTX was a platform where people could purchase and hold crypto, but the problem was there was no regulation,” Grobar said. “There was no insurance fund, there was really no protection for the consumer. And when FTX went under, everybody lost everything.

So, I think that that was a wake-up call.”

She said the realization many FTX clients had was that their assets were not really protected and, in fact, were at great risk, which they would soon find out when owner Sam Bankman-Fried had been committing fraud by misusing funds.

Laura Gonzalez Alana, an associate professor of finance at CSULB and president of the Southwestern Finance Association, said a lack of regulation has left the American crypto market to serve as the Wild West.

Alana noted that another large, overarching issue is the market’s volatility – the ease at which currencies can have significant upward and downward movements over shorter time periods.

Alana offered a potential solution to the unpredictability of the market, suggesting that creating a federally backed cryptocurrency would help follow in the footsteps of countries such as China and India who have implemented central bank-backed currencies with safety and sustainability in mind. China has begun cracking down on cryptocurrency mining and trading, while the U.S. is just starting to place new regulations on the industry.

“Unlike other countries that have started developing official cryptos that are backed by the central banks, in our case, we do not have that,” Alana said. “In the United States, there was a project that is being discussed in 2020 in relation to the stimulus checks during the talk was about creating a FEDcoin that is electronic but at that time, there was no decision to be implemented.”

There have also been positive developments. Companies like Tesla and Square investing billions of dollars in Bitcoin and traditional financial firms like JPMorgan are exploring ways to integrate cryptocurrencies into their operations.

Both of these steps make the possibility of a federally backed coin seem more possible, which could point towards a more controlled direction for the future of cryptocurrency.