The Treasury Division’s monetary stability watchdog says fraud is rampant within the digital forex markets

The cryptocurrency market is riddled with scams, breaches of existing laws and huge swings in volatility, but the recent implosion of digital currency exchange FTX hasn’t hampered the broader financial system, according to a report released Friday by the Treasury Department’s Financial Stability Oversight Committee .

“FTX is a shock to this market,” a Treasury Department official said, adding that the bankruptcy underscores the committee’s concerns about crypto, highlighted in a report released in October.

The committee, formed in the wake of the financial crisis to identify looming risks to the financial system, reiterated its call for Congress to pass legislation allowing US regulators to monitor spot markets for non-securities crypto assets .

The council also said lawmakers must address regulatory arbitrage when companies use more favorable or lighter regulations in multiple jurisdictions to circumvent stricter US regulation

The group uses data from the Consumer Financial Protection Bureau, the Federal Trade Commission, and the Securities and Exchange Commission, among others, to help uncover crypto scams. Of 8,300 crypto complaints received by the CFPB’s Consumer Complaint Database between October 2018 and September 2022, 40% appeared to be a “scam or scam.”

According to the FTC, between January 1st, 2021 and March 31st, over 46,000 people have lost more than $1 billion trading crypto to scams and scams.

Since fiscal 2019, the SEC has received over 23,000 notices, complaints, and referrals related to the crypto markets.

But while FTX’s failure “accelerated price declines in bitcoin and other cryptoassets,” according to the report, there was “limited impact on the broader U.S. financial system” due to the current regulatory framework.

The committee warned that this could change quickly as participants in the crypto and traditional financial systems continue to develop ways of overlapping, increasing the urgency of increased regulatory oversight.

For example, traditional banks hold stablecoins as part of their currency reserves, retail investors are increasingly using leverage to trade cryptocurrencies, and crypto has also become more widely available through some traditional financial services companies. Stablecoin is considered a less risky type of cryptocurrency as it seeks to reduce price volatility by deriving its value from a fixed traditional currency or commodity such as the US dollar or gold.

“Such connections would amplify the impact of shocks originating in the digital asset ecosystem,” the report said.