Yellen, the US Treasury Secretary, claims that cryptocurrency lacks adequate regulation and refers to the FTX collapse as a “Lehman moment.”

The failure of crypto exchange FTX, according to US Treasury Secretary Janet Yellen, demonstrates that the crypto industry “really needs adequate regulation.” “It’s a Lehman moment within crypto,” she added, “and crypto is big enough that we’ve had significant harm with investors.”

Following the collapse of crypto exchange FTX, US Treasury Secretary Janet Yellen spoke about the need for adequate crypto regulation at an event hosted by the New York Times Dealbook on Wednesday. She stated:

I’ve been skeptical and continue to be so.

While emphasizing the importance of ensuring adequate customer protections for crypto assets, the Treasury Secretary also stated that it is critical to remain open to financial innovations, particularly those that could lower cross-border transaction costs and help improve financial inclusion.

Yellen then addressed the collapse of FTX, which declared bankruptcy on November 11. The crypto exchange owes more than $3 billion to its 50 largest creditors, and an estimated one million customers and other investors face total losses in the billions of dollars as a result of its collapse. She stated:

Everything we’ve seen in the last few weeks, and even before that, suggests that this is an industry in desperate need of adequate regulation. It also does not.

The Treasury Secretary also revealed that the United States is discussing cryptocurrency regulations with allies, and that the Treasury Department has identified “significant” concerns about cryptocurrency. She stated that one of the top priorities is to ensure the protection and segregation of customer assets.

Yellen compared the FTX collapse to the failure of Lehman Brothers. In 2008, the investment bank filed for Chapter 11 bankruptcy, resulting in a massive stock market downturn and a $700 billion bailout from the US government. Yellen stated:

It’s a Lehman moment in crypto, and crypto is large enough that investors have suffered significant losses.

Despite this, she stated that the FTX meltdown “hasn’t spilled over to the banking sector,” emphasizing that “banking regulators have been very cautious about crypto.”

Yellen stated earlier this month that the failure of FTX has reinforced her belief that the cryptocurrency market requires “very careful regulation,” noting that “it shows the weaknesses of this entire sector.” “In other regulated exchanges, customer assets would be segregated,” she explained. The idea of taking deposits from exchange customers and lending them to a separate enterprise under your control to make leveraged, risky investments is not permitted.”