This article is part of the Politicization of Central Banking special report.

AMSTERDAM — Global regulators can’t afford to just let crypto “burn out,” according to Klaas Knot — the man overseeing international efforts to bring the sector to heel.

The crypto industry has absorbed some crushing blows over the last year, including the collapse of the FTX exchange in November.

That has led to calls in some quarters for regulators to sit back and let the crypto crater deepen, rather than applying regulation that might legitimize the speculative assets.   

“That’s a little bit overdone,” Knot, chair of the Financial Stability Board, told POLITICO in an interview at the end of April. “This whole ‘let it burn out’ strategy, I don’t believe in it.”

Indeed, expectations that crypto would die from its wounds have proved premature: the collapse of a string of U.S. regional banks has revived true believers’ faith that digital currencies will outlive mainstream finance. Bitcoin has risen nearly 50 percent since Silicon Valley Bank went under, while the stablecoin Tether’s market cap — a rough proxy for global exposure to crypto — is back where it was before the first of the big crypto scandals last year.

The FSB, an international standard-setting body, is working on a global regulatory framework for crypto assets and stablecoins, with final recommendations due out in July.

Under the proposals, which are not yet finalized, crypto would become subject to tougher supervision, along with firm rules on information exchange, disclosures, governance and risk management — like other financial markets.

Knot, who also heads the Dutch central bank, said that reflects the reality that the crypto market exists, and that ordinary people are investing their money in it — despite regular warnings from officials about its riskiness, and the constant drumbeat of scams.

“We live in a free world. If investors and consumers opt to invest in these crypto assets, then it behooves us to come forward with an appropriate regulatory response,” he said.

It’s also because some of crypto’s blowups, including FTX, have replayed bad behavior from the world of traditional finance that securities regulation aims to prevent — including the basics, like dipping into customers’ funds.

Knot highlighted enduring “serious issues” with the sector, such as conflicts of interests at crypto conglomerates and the need to keep leverage out of the system.

“These are structural vulnerabilities that will not go away,” he added.