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Crypto: A lot of the regulatory scrutiny ‘is really not warranted,’ expert says

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Chamber of Digital Commerce Founder and President Perianne Boring weighs in on the volatility of bitcoin in relation to the cryptocurrency's price plunges and responds to Charles Munger's comments on bitcoin's outlook.

Video transcript

[MUSIC PLAYING]

- Welcome back to Yahoo Finance. We're going to take a look at the price of Bitcoin yet again. You can see it's actually bouncing back a little bit, getting close to that $49,000 level. But, of course, quite the fall from the $57,000 price that we had seen on Friday. It was as low as $45,000, almost $45,000, over the weekend.

And it's always the case that it's difficult to attribute exactly what's going on in the price to crypto to any single news item, but let's break a little bit through the noise and see if the regulatory headwinds in DC may be to blame. We've got Perianne Boring, Chamber of Digital Commerce Founder and President here on Yahoo Finance. Thank you so much for joining us this morning. Of course, all this is happening ahead of that Wednesday hearing with the CEOs of circle others set to speak to the House Financial Services Committee. Is that the reason why we're seeing the price volatility over the weekend? How do you feel traders are kind of interacting with that hearing coming up this week?

PERIANNE BORING: No. This is a routine conversation happening with the House Financial Services Committee. The Committee announced their agenda several months ago of what the priorities of that Committee are going to be. Crypto has always been a part of that conversation. I do not believe that's what's driving the price action today.

You kind of went through your graph there, Bitcoin is down 19% over the past month. But I would encourage you just to zoom out a little bit more. Bitcoin is up 152% over the past year. And I'd also like to just remind everybody that Bitcoin has been the best performing asset out of all asset classes 10 out of the past 12 years that it has been trading.

To have anywhere from 30% to 40% volatility in any given month, that is normal for Bitcoin. This is not a unique situation, this is a volatile market. Sometimes the volatility goes in a downward direction, but it has averaged 250% returns year over year over the past 10 years.

Today, Bitcoin is undervalued if you look at the models, it is undervalued today. So I actually see this as a buying opportunity. The regulatory conversations are an important part, but today's downward trend, this had to do with some activities happening in the markets.

There was over a billion dollars of leveraged Bitcoin positions that were liquidated. That's what is believed to have triggered this short term decline. When those positions were liquidated, it also triggered a number of margin calls. And according to NYDIG, there's been about $2.5 billion of leveraged crypto positions that have been liquidated just in the past couple of days.

So, again, this type of volatility is normal, it's part of being a volatile asset class. And that's part of the risk you have to take to invest in the best performing asset in the world today.

JULIE HYMAN: Hey, Perianne, it's Julie here. Is the leverage in the crypto world a problem? Is this something that various crypto trading platforms need to limit to a higher degree or that regulators need to limit?

PERIANNE BORING: I mean, it's nowhere near as leveraged as the regulated financial system. I think that's really a big part of the question the regulators are having today. What are appropriate Reserve requirements? Just this summer, the Bank for International Settlements, the Basel Committee went through an entire framework to decide what different types of Reserve requirements are appropriate for different types of digital assets that banks will be involved in. So leverage is a normal thing to have in a financial system, and this is part of the asset class.

When it comes to investors, investors, one, need to understand what it is they're buying into. And each investor should be able to make and determine what type of risk they want to take on. So leverage isn't bad as long as it's disclosed, and investors should be able to decide what they're willing to invest in based on having full information.

BRIAN CHEUNG: Hey, Perianne. It's an interesting point you bring up. Yeah, for those that are maybe in the Basel III kind of loop, which I imagine is most human beings, they're proposing a 1500% risk weighted requirement on any sort of holdings of crypto on their balance sheets.

Now, one challenge that we've heard from the industry is that that's an arbitrary weighting, 1500%, right? But at the same time, where do you have a measuring stick where you can say what is the proper risk on your balance sheet of holding a volatile crypto asset versus, say a leveraged loan, right? That's a little bit more difficult. So how are you kind of approaching your conversations with regulators to help them get a better understanding of the fact that this is a risky asset, but here's what the proper weighting should be on that?

PERIANNE BORING: Yeah. And, I mean, this is a more nuanced conversation, so maybe if we just drill this down into one area of cryptoassets and look at stablecoins. That is going to be one of the major topics of discussions this Wednesday and the House Financial Services Committee Hearing.

Most stablecoin arrangements that are regulated in the United States operate with full reserves. So there is no leverage. So why is there so much concern that these are systemic or could cause systemic risks? Some of it just doesn't even make logical sense. And a lot of the digital asset trading platforms and exchanges today, they're also operating on full reserves. And they're regulated, they're regulated mostly by the states. As money transmitters, they have multiple licensing regimes that they have to operate within. They have a very high degree of regulatory oversight.

So I think a lot of the scrutiny is really not warranted and it really questions, like, ultimately what is the motive of the policy community today? What exactly are they trying to regulate for? Is it consumer protections? Is it investor protections? Or is it something political? And I think these are really important questions that need to be addressed more head on.

BRIAN SOZZI: Perianne, what's the buzz in the crypto community off of those very critical comments from Charlie Munger last week?

PERIANNE BORING: I mean, I had a great time kind of reading what he was putting out there. It just seems so ridiculous. I mean, the thing about Charlie Munger is, I mean, what does he even know about Bitcoin? What does he even know about cryptocurrencies? Could he tell you the difference between proof of stake or proof of work? Maybe, I highly doubt it. I haven't seen that articulated for him. I wouldn't take financial advice by somebody who has very little understanding of digital assets.

BRIAN CHEUNG: Well, certainly some people might be arguing that--

JULIE HYMAN: Well, he's done all for himself, I think.

BRIAN CHEUNG: I was going to say--

PERIANNE BORING: He has, but he also represents-- Yeah. And I have so much respect for what he's accomplished over his career, but I think his career is next to being over. And we have a whole new generation of younger people who want to see a financial system that everyone has the opportunity to participate in.

If you look at what he says, he's like I wouldn't let these crypto people in my family. We're in a permissionless environment, that is the beauty of Bitcoin, that is the beauty of blockchain technology. It's open source. You don't have to have permission to operate and to participate in the system. And that's something that's greatly needed in our financial system today. And he completely misses that. And it's OK because we're going to outlive him.

BRIAN CHEUNG: Well, we'll see who's on team GMI and who's on NGMI. But Perianne Boring, Chamber of Digital Commerce Founder and President, thanks so much.

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