According to Yellen, the demise of FTX is “a Lehman moment” for cryptocurrency.

The collapse of FTX was described as “a Lehman moment” for the digital asset sector by Treasury Secretary Janet Yellen.

Yellen referred to the collapse of the Lehman Brothers bank, which accelerated the global financial crisis in 2008, when she said, “It’s a Lehman moment within crypto, and crypto is big enough that you’ve had substantial harm of investors, and particularly people who aren’t very well-informed about the risks that they’re undertaking, and that’s a very bad thing.”

According to Yellen, “This is an industry that really needs to have adequate regulation but it doesn’t.” She continued, referring to Sam Bankman-Fried and FTX, Alameda Research, and their numerous affiliated businesses, saying, “We have consistently urged that regulatory gaps be closed and I think this experience with his firm, or set of firms, just couldn’t provide a better illustration.”

Before the FTX collapse, the Treasury Department and the Financial Stability Oversight Council, a super committee of regulators that Yellen chairs, both advocated for maintaining the application of the current financial laws governing digital assets. The FSOC also advocated for Congress to enact a number of new laws to address any regulatory gaps that may exist for cryptocurrency businesses, including “regulatory arbitrage,” in which companies like FTX position themselves outside of conventional regulatory channels.

The good thing about the explosion we witnessed, she continued, “is that it hasn’t spread to the banking industry; banking regulators have been very careful.”