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Crypto: Bitcoin briefly falls below $27,000, Luna stock continues crumbling

Yahoo Finance's Jennifer Schonberger joins the Live show to recap cryptocurrency exchange FTX's proposal for collateral systems to lawmakers amid the crypto sell-off.

Video transcript

EMILY MCCORMICK: Welcome back. Let's get a check of the price action in cryptocurrencies this afternoon. Bitcoin prices are still trading lower, down below $29,000. And those prices also fell to their lowest level since December 2020 today, as the crypto selloff continues. Now, meanwhile, prices of Ethereum are also trending lower, down 10% to about $1,900 as well.

And prices for the altcoin, Solana, also under pressure. Now all of this, of course, is coming as the collapse in prices of Luna, the sister cryptocurrency of the stablecoin Terra USD, continues to reverberate across the broader crypto ecosystem. Now, Luna had peaked at just over $100 earlier this year. It's now cratered by more than 99%.

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RACHELLE AKUFFO: And clearly, that crypto selloff front and center there, but also the role of regulation in the crypto space. So let's get the latest from our very own, Jen Schonberger. Jen, what do we need to know about what's happening?

JENNIFER SCHONBERGER: Good afternoon. At an at times contentious hearing on Capitol Hill before the House Agricultural Committee this morning, lawmakers debated the proposal for an automated collateral system for digital assets' use in futures markets. The proposal made by cryptocurrency exchange, FTX, would require customers to deposit collateral and have enough to cover margin requirements that would be calculated automatically.

If the margin fell too low, an automatic selling process for that investment would start. FTX CEO Sam Bankman-Fried testified that the proposal would promote healthy markets and fair and equitable access to platforms, while trying to solve for the mismatch of speed for crypto derivatives versus current clearinghouse models.

SAM BANKMAN-FRIED: We believe that this would bring competition and innovation. It would bring liquidity to the US marketplace and options to US consumers. It would bring competition in the futures market, where almost all of the volume is traded by just two exchanges. And it would bring competitiveness to the United States with respect to the rest of the world.

JENNIFER SCHONBERGER: But lawmakers were skeptical and inquisitive at times. And one witness, Terry Duffy, CEO of the CME, panned the proposal. He called the automated clearinghouse a, quote, "false claim of innovation," and said it was a little bit more than cost cutting and said it could hurt markets.

TERRENCE DUFFY: The FTX proposal to instantaneously auto liquidate any customer who is under margin at any given moment in time would jeopardize both market integrity and financial stability.

JENNIFER SCHONBERGER: And Duffy went on to say that the FTX proposal would potentially remove up to $170 billion of loss absorbing capital from clearinghouse derivatives markets. He said that automatic liquidation could exacerbate volatility and create a dramatic price move during times of turbulence, with the potential to build losses on top of losses and destabilize markets for all investors. The CFTC is reviewing FTX's proposal and is expected to hold a roundtable on this on May 25. I should also note that a comment period on this just ended yesterday. Guys.

EMILY MCCORMICK: And Jen, when we think about the implications of this proposal, are these things that could apply to more than just crypto?

JENNIFER SCHONBERGER: Yeah, absolutely. I think that lawmakers on Capitol Hill and professionals on Wall Street are looking at this seriously because it could apply not just to digital assets and cryptocurrencies, but it could also apply to regular futures trading. I think this is a model that the CFTC is considering, as it looks at other potential models that would remove the middleman, kind of applying that whole blockchain technology crypto approach.