OCC’s Hsu: Terra shows that ‘hype is not harmless’ 

WASHINGTON —  Acting Comptroller Michael Hsu offered a sober perspective of crypto in front of a room of blockchain advocates. 

At the DC Blockchain Summit, Hsu publicly spoke about the TerraUSD crash at length for the first time, saying the episode underscored concerns he holds about cryptocurrency more broadly. 

Hsu has been a skeptic of cryptocurrency in the past, as he noted during his remarks, and said that the Terra meltdown should be a “wake-up call” to the industry. 

Bloomberg News

“The hype and the associated vulnerabilities noted above make the crypto space very dangerous for investors of modest means,” he said. “The TerraUSD holder stories are heartbreaking and a strong reminder that hype is not harmless. Given the massive inflow of venture capital dollars into the space, my fear is that the hype problem may get worse before it gets better.” 

Hsu noted that the Terra collapse didn’t just affect Terra —  it also spread to other cryptocurrencies, including Tether, the largest stablecoin by volume. He alluded to larger concerns about the crypto system's interconnectedness. 

“Such contagion is familiar to bank regulators and students of moneylike instruments — prudential regulation can help,” he said. 

He also highlighted the Office of the Comptroller of the Currency’s move last year to “remind” banks to check in with the agency before they engage in crypto activities. He said that with his “encouragement and support,” the Federal Deposit Insurance Corp. issued a similar letter this year. 

Those actions helped ensure the banking system’s stability during the Terra crash, Hsu said. 

“No banks are under stress or even rumored to be under stress due to crypto exposure,” he said. “This absence of stress has allowed the traditional banking system to remain a source of strength to households and businesses through the recent financial market volatility.”