The FTX digital currency trading platform, founded by Sam Bankman Fried, declared bankruptcy last week, and was considered one of the largest cryptocurrency exchanges.
In this regard, Yellen explained, in a statement Wednesday, that the crash demonstrated the need for more effective oversight of cryptocurrency markets.
Yellen said the crash demonstrated the need for more effective oversight of cryptocurrency markets, stressing the need to pass the most comprehensive framework so far that would place cryptocurrencies under a single regulatory umbrella.
"We have very strong investor and consumer protection laws for most of our financial products and markets that are designed to counter these risks," she added, noting that these laws must be strictly enforced "so that the same protections and principles apply to crypto assets and services."
The official stated that the Treasury Department had issued many reports, in response to the executive order issued by US President Joe Biden last September regarding digital assets, in which it identified several risk factors related to the collapse of FTX and subsequent bankruptcy.
And she considered that "if those reports had turned into a control policy, a disaster could have been prevented."
She added that the most prominent risks "that we identified in these reports, such as the mixing of clients' assets, lack of transparency and conflicts of interest, contributed to increasing pressures in the cryptocurrency market, which were observed during the past week."
In this context, she called on the federal government, including Congress, to take urgent action to fill the regulatory gaps identified by the Biden administration.
The minister warned that the risks posed by the failure to effectively regulate cryptocurrencies - either by taking advantage of existing laws or by creating a new framework - could be more devastating and far-reaching than even the current circumstances.
Yellen noted that the spillover effects of events in the cryptocurrency markets were limited, adding, "However, further interdependence between the traditional financial system and the cryptocurrency markets could raise broader concerns about financial stability."
According to Bloomberg, last year FTX said it had more than 5 million users around the world and traded more than $700 billion in cryptocurrency that year alone.
The FTX Exchange, which until recently was one of the largest cryptocurrency exchanges in the world, recently declared bankruptcy after revelations that its business practices led to an increase in customer withdrawals without sufficient funds to fulfill the withdrawals.