Regulation is needed to open the crypto ecosystem to a larger public, United States Federal Reserve Board Governor Christopher Waller told an audience at the SNB-CIF Conference on Cryptoassets and Financial Innovation in Zurich, Switzerland. Financial intermediaries can help manage risk for new crypto users, but cannot eliminate it, Waller said, and new and fast-growing financial products need public confidence to survive.

The banking official used historical examples to show the relationship between technical innovation, regulation and the amassing of fortunes. “New technology — and a lack of clear rules — meant some new fortunes were made, even as others were lost,” Waller said.

Experienced investors know how to operate in unregulated marketplaces and may not need or want regulation, Waller continued. He pointed to a recent Fed survey that showed that even with the explosive crypto-assets in recent years, only 12% of American adults own crypto, and 99% of them hold it for investment purposes.

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Intermediaries in the financial market may want regulation because new users who have negative experiences with crypto could enter into disputes with them. Waller explained: “When everyday investors start losing their life savings, for no reason except wanting to participate in a hot market, demands for collective action can mount quickly.”

Those demands can grow into the socialization of individual losses, such as calls to reimburse small investors who have suffered losses in the collapse of the Terra (LUNC; formerly, LUNA) ecosystem, the central banker reasoned. That, in turn, leads to increased demand for regulation to prevent the situation from reoccurring.