By Yasin Ebrahim
Investing.com -- U.S. Treasury Secretary Janet Yellen said Wednesday that the collapse of cryptocurrency exchange FTX into bankruptcy demonstrated the need for the government to quickly fill the regulatory gaps in cryptocurrency markets.
Bitcoin (BitfinexUSD) was down more than 1% in recent trading.
"The recent failure of a major cryptocurrency exchange and the unfortunate impact that has resulted for holders and investors of crypto assets demonstrate the need for more effective oversight of cryptocurrency markets," Yellen said.
FTX filed for bankruptcy last week after failing to secure a bailout needed to plug a significant liquidity crunch as customers frantically raced to pull funds from the exchange. Alameda Research, a trading firm founded by FTX founder Sam Bankman-Fried was also reported to have used billions of dollars of client deposits for trading.
The misuse of customer funds was cited as one of the key risks in crypto markets, Yellen said, citing findings from the Treasury Department. "Some of the risks we identified in these reports, including comingling of customer assets, lack of transparency, and conflicts of interest, were at the center of the crypto market stresses observed over the past week," she said.
The federal government, including Congress, needs to "move quickly to fill the regulatory gaps the Biden Administration has identified," she added. The Treasury secretary also warned, citing a recent report by the Financial Stability Oversight Council, that "further interconnections of the traditional financial system and crypto markets could raise broader financial stability concerns."