In the fall of 2021, the digital asset market reached a record-high $3 trillion market capitalization. Since then, it has lost over $2 trillion in total value as a combination of rising interest rates and high-profile digital asset scandals made these risky digital assets less appealing to investors. The most notable of these scandals happened in just the last few weeks, when the third-largest cryptocurrency exchange, FTX, declared bankruptcy after it was revealed to have fraudulently engaged in risky financial bets with its customers’ deposits. Its founder was also indicted on a number of charges related to defrauding investors.
The broad contraction in the digital asset market and the consistent string of hacks, scams, fraud and other criminal activity have cost everyday investors billions in market value. Unfortunately, many of these consumers bought into the crypto asset boom just as prices were peaking and are likely the least able to weather large financial losses. While the recent digital asset collapse is worrying, guardrails between the digital asset landscape and traditional finance mean that lagging digital asset values do not appear to have spilled over into the broader economy.
This recent and painful history highlights the need for greater market transparency to prevent fraud and for common-sense investor protection efforts that can be accomplished in part through existing securities regulations. While the decentralized and borderless nature of many crypto companies makes enforcement and prevention efforts more difficult, this recent collapse calls for a comprehensive approach to crypto regulation that prioritizes consumer protection and economic stability ahead of unproven claims of financial innovation.