US Banking Regulator Issues Crypto Warning, Says Terra (LUNA) Collapse Exposed Three Industry ‘Fragilities’

The head of the Office of the Comptroller of the Currency (OCC) is reiterating the risks of investing in crypto assets following the Terra (LUNA) collapse.

In a new interview on Yahoo Finance Live, OCC Acting Comptroller of the Currency Michael Hsu says Terra’s crash unveiled the fragilities of the crypto space.

“I think the Terra Luna collapse has revealed a number of things, but I really want to focus on three.

The first is stablecoins are not stable. Clearly, to have an $18-billion-dollar stablecoin crash so quickly, I think showed that.

Second, a lot of the growth in crypto is driven by hype. Part of the reason that Terra was able to grow so quickly,  it was hyped and there were some very attractive yields that were not sustainable put onto it. 

Third, contagion risk is real. You saw the selloff lead to both a broader selloff in the cryptocurrency market generally. I think half a trillion dollars of value was lost in a relatively short period of time and you saw some pressure on another stablecoin, Tether, which is not algorithmic. Tether briefly depegged.

I think some of these lessons just kind of reveal some fragilities in that space that everyone needs to be really careful about.”

Hsu also comments on accusations of Terra being a Ponzi scheme.

“There was a crypto hedge fund manager who said if you can’t figure out where the yield is coming from, it’s probably coming from future bag holders, those are his words.

I think that is something to kind of bear in mind. There’s been a lot of hype, a lot of yields which I pointed out over a year ago to say where are these yields coming from? You should really understand that, that’s very important to protect investors, if you’re investing in the space, to understand these things.”

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