With the collapse of Sam Bankman-Fried’s FTX, FTX US and Alameda Research, members of Congress on both sides of the aisle are reevaluating their positions on crypto legislation.
FTX CEO, Sam Bankman-Fried, was a regular in the halls of Congress over the past year or so.
Bankman-Fried’s FTX was one of the largest crypto exchanges until it collapsed in the space of a week.
With it went the likelihood of the crypto industry getting as much of what it wants in terms of a legislative framework focused on innovation more than consumer protection — although like the crypto lobby, every elected official and regulator says they want the right mix of both.
No to the Crypto Bros
Crypto opponents feel largely empowered, as the $48 billion May collapse of the Terra/LUNA stablecoin ecosystem and the ongoing wave of crypto lender bankruptcies have given their positions substantial backing.
FTX’s collapse makes Bankman-Fried the poster child of the “crypto billionaire bros” who “are so desperate… for the patina of regulation as they continue to try to build a system that will allow them to make more trillions while facilitating tax evasion and sanctions evasion,” Rep. Brad Sherman (D-Calif.), an opponent of legal crypto ownership, told CNBC.
The “money and power” in Washington, D.C., is still with them, Rep. Sherman added. “We’ll be fortunate if we can just avoid passing bad legislation because they are so desperate. They really want a patina of regulation.”
And thanks to Bankman-Fried, who was found to have been using customer funds to shore up his trading firm, Alameda Research, after the collapse, “they need it so much now to try to restore credibility.”
Sen. Elizabeth Warren (D-Mass.), a leading crypto critic, said FTX’s collapse “shows how much of the industry appears to be smoke and mirrors,” in a Nov. 9 Twitter post calling for “more aggressive enforcement” by the Securities and Exchange Commission (SEC).
A Dumpster Fire Worth Extinguishing
“There’s no sugar coating it. The collapse has been a dumpster fire,” said Rep. Patrick McHenry (R-N.C.) the top Republican and likely incoming chairman of the House Financial Services Committee at a hearing this week, CNBC reported. “Users left out to dry. Ecosystem in limbo. [We] must develop a clear regulatory framework for the digital asset ecosystem.”
Speaking at a Nov. 16 committee hearing on regulatory oversight of banks, McHenry, who has been largely supportive of the industry, has been negotiating a stablecoin-only regulatory bill with current committee chairwoman, Rep. Maxine Waters (D-Calif.), for months now.
That work, and that bipartisanship, must continue when the chairmanship of the committee switches next year, he said, warning that Congress “must develop a clear regulatory framework for the digital asset ecosystem,” Cointelegraph reported.
Referring also to the Terra/LUNA collapse, Rep. Waters said there is “great urgency” in working with Rep. McHenry on a December hearing on crypto regulation. She argued that FTX’s failure is:
“Unfortunately just one out of many examples of cryptocurrency platforms that have collapsed just this past year.” “The fall of FTX has posed tremendous harm to over one million users, many of whom were everyday people who invested their hard-earned savings into the FTX cryptocurrency exchange, only to watch it all disappear within a matter of seconds.”
All Together Now
There are two bipartisan bills proposing a framework for crypto regulation in the Senate.
The first is the Responsible Financial Innovation Act by Sen. Cynthia Lummis (R-Wyo.) and Sen. Kirsten Gillibrand (D- N.Y.). It is moving ahead, with Sen. Lummis tweeting out her belief that under the the two have introduced, “the FTX bankruptcy wouldn’t happen.”
She cited five reasons:
- Clear property rights (not your keys, not your coins!)
- Strong protection & separation of customer assets on an exchange
- Tight limits on digital asset leverage & lending
- Bankruptcy protection for all customers
- Transparency into affiliates and connected organizations of an exchange
Another bipartisan pair pushing their bill ahead is Sen. Debbie Stabenow (D-Mich.) and Sen. John Boozman (R- Ark.), who authored the Digital Commodities Consumer Protection Act of 2022 (DCPPA). The bill, which would give a great deal of control over the crypto spot market to the Commodity Futures Trading Commission (CFTC) over the Securities and Exchange Commission (SEC), has been heavily lobbied for by Bankman-Fried and generally favored by the broader crypto industry.
Calling it “a robust bill that aims to bring transparency and accountability to the market,” Sen. Boozman nonetheless said that “in light of [FTX’s collapse], we are taking a top-down look to ensure it establishes the necessary safeguards the digital commodities market desperately needs.”
Go Fast or Go Slow
Rep Tom Emmer (R-Minn.) is co-chair of the Congressional Blockchain Caucus and the incoming Republican Whip, making him the No. 3 in the House GOP hierarchy and a strong supporter of the crypto industry who hasn’t changed his mind.
Speaking at a Blockchain Association event in the capital this week, Coindesk reported that Rep. Emmer said:
“We need to use the stage that is Congress to promote all of you beyond the walls of the Capitol. People need to understand more out there that they shouldn’t be afraid of this.”
Opponents, he added, should not “rush in and put a huge wet blanket of regulation atop this industry just because something didn't go right.”
Others say it’s time to reevaluate everything. Sen. Sherrod Brown (D-Ohio) warned:
“The cryptocurrency market’s continued turmoil is why we must think carefully about how to regulate cryptocurrencies and their role in our economy,” said Brown. “It is crucial that our financial watchdogs look into what led to FTX’s collapse so we can fully understand the misconduct and abuses that took place.”
And, The Block reported that a “visibly upset” Sen. John Kennedy, (R-La.), said:
“We need to spend a lot of time on this and unravel the whole thing, and somebody needs to go to jail.”
