- US Senator Elizabeth Warren has called crypto the “new shadow bank,” highlighting the lack of consumer protection in the space.
- However, crypto advocates argue that crypto is “100% transparent” since it utilizes blockchain technology to record transactions.
- “This new financial system is about fairness and banking the unbanked,” one user said.
US Senator Elizabeth Warren has recently called crypto the “new shadow bank.” That is not the first time Warren has attacked the crypto industry; she has been a critic for as long as one can recall. However, this time, the community has responded in a reproving manner.
In an interview with the New York Times, Elizabeth Warren said cryptocurrency is like the “new shadow bank.” She reasoned that the lack of consumer protection and extreme volatility rampant in the space makes crypto a weak financial system. She said:
It provides many of the same services, but without the consumer protections or financial stability that back up the traditional system. It’s like spinning straw into gold.
Lawmakers and regulators have been increasingly voicing concerns regarding bank-like crypto services recently. Banking services such as loans, credit cards, and interest-generating accounts are now offered by DeFi platforms, which is considered a cause for alarm for federal regulators and other official bodies.
BlockFi, a DeFi lending and savings firm, has been under regulatory scrutiny for its interest-earning accounts. Starting mid-July, numerous states requested the halt of the BlockFi Interest Accounts (BIAs), claiming such accounts are more like securities and shouldn’t operate without registration.
However, considering that banks also offer interest-earning accounts, the only difference is then the underlying currencies, which is crypto in the case of BlockFi. It is worth mentioning that at a time when the banks’ interest rates are next to zero, BlockFi offers outstanding return on investment opportunities, which makes the company a considerable competitor to banks.
Crypto Community Responds to Sen. Warren’s Claim
Following Elizabeth Warren’s claim that crypto is like the “new shadow bank,” a number of users took to Reddit to bite back against the claim. One user said:
Gaslighting. BTC’s transactions are literally 100% transparent. The Federal Reserve is the real shadow bank.
Almost all cryptocurrencies use blockchain technology to record transactions. Therefore, every transaction is easily visible, traceable, and immutable, meaning no one can alter its details. That is why pundits claim crypto is more transparent and trustable compared to other financial systems.
“Literally the stupidest point she could make about crypto. Nothing is more transparent than blockchain. Banks are the real scams here,” another user said.
Another user took to Twitter, saying how crypto helps and benefits the unbanked and underbanked. “This new financial system is about fairness and banking the unbanked. I live in Asia and am surrounded with folks who are unable to get bank accounts or loans. The [legacy financial] system is broken,” they said.
Prior to this, in early July, Warren said that the “highly opaque and volatile” crypto space presents risks to financial markets as well as individual users. She also asked SEC Chairman Gary Gensler to provide a crypto regulation update.