Lawmakers and regulators eye Celsius after crypto exchange halts customer account withdrawals

Yahoo Finance reporter Jen Schonberger explains how the move by crypto exchange platform Celsius to pause customer account withdrawals amid the broader sell-off has caught the attention of lawmakers and regulators.

Video transcript

SEANA SMITH: Bitcoin falling just around 23,000. Jennifer Schonberger has a closer look at what this potentially means for regulations. Jen.

JENNIFER SCHONBERGER: Good afternoon. Crypto lender Celsius Network's decision to pause all customers' withdrawals and transfers overnight in the wake of that major plunge in cryptocurrencies has caught the attention of regulators and lawmakers in Washington. The thinking within the Biden administration is that regulations that were proposed to regulate stablecoins by the president's working group on financial markets could extend to the entire crypto space to avoid runs and shutting down platforms, as in the case of Celsius.

Specifically, the PWG report says stablecoin issuers should have adequate reserves to make sure they can make good on redemptions. The thinking is, the same principle should extend to exchanges where there should be adequate reserves held by platforms so that when people want their money back, they can easily get it and runs are avoided.

To ensure against those runs, the following has been proposed. Like with stablecoin issuers, customer assets should be separated from trading platforms. Digital wallets held on exchanges should be subject to federal regulatory oversight. Exchanges should be restricted from lending customers digital assets out. And they should, of course, comply with liquidity and capital requirements.

Speaking of that, senators Kirsten Gillibrand's office has said the senator's bill, jointly introduced with Senator Cynthia Lummis to regulate crypto, would help prevent the current upheaval in crypto markets by bringing crypto exchanges under the purview of the Commodities, Futures, and Trading Commission.

That would require exchanges to hold significantly higher capital to the tune of $20 million of net adjusted capital to back their trading activities. The bill would guarantee that if an exchange or lender suffered financial difficulty, customers would be assured to get their assets back. Now, when we reached out to the Securities and Exchange Commission for comment on this and what should be done, Yahoo Finance did not immediately hear back. Seana.