Slow-moving crypto regulation puts market at greater risk of 'innovation-killing crackdown,' says former NY Fed President Bill Dudley

• The US needs to move much faster in creating crypto regulations, former NY Fed President Bill Dudley wrote for Bloomberg Opinion.
• Lack of regulation raises the chances the US will enact an "innovation-killing crackdown" after a large cybertheft or a market crash.

Crypto advocates should be pushing the US to move faster in creating regulatory oversight of the $2 trillion digital-assets market as further delay puts it at risk for rules that could stifle innovation, former New York Federal Reserve President Bill Dudley wrote Tuesday.

In a Bloomberg Opinion piece, he said President Joe Biden's recent executive order on cryptocurrencies "sets the right tone," but is not enough to ensure regulation is put in place before the industry's "unfettered growth" leads to significant disruptions and losses.

"The longer officials wait, the greater the risks to consumers, markets and the economy — and the greater the chances that large losses due to cybertheft or a market crash in crypto assets will force an innovation-killing crackdown," wrote Dudley, who was head of the powerful Fed branch between 2009 and 2018.

Biden in March signed an executive order telling federal agencies, including the Securities and Exchange Commission, to study the risks and benefits of cryptocurrencies. The order sweeps across government agencies because the US lacks one regulator overseeing the digital-assets market that includes cryptocurrencies such as bitcoin and ether, decentralized finance tokens, and non-fungible tokens, or NFTs.

The fragmented regulatory system is one reason officials have moved so slowly, said Dudley, noting responsibility is spread across various departments, including the Federal Reserve, the SEC, the Commodity Futures Trading Commission, and the Treasury Department.

Such fragmentation is "conducive to turf battles" that can inhibit cooperation, said Dudley.

The Biden administration can help overcome that hurdle by clearly delegating responsibilities, he said. As well, regulators need to bolster their understanding of the market by setting up committees of industry experts and hiring their own well-informed advisers.