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.
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.”
A Dumpster Fire Worth Extinguishing
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.
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.
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.
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.
“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.”
“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.”
“We need to spend a lot of time on this and unravel the whole thing, and somebody needs to go to jail.”