What can Washington do to prevent another crypto meltdown? : NPR

Sam Bankman-Fried, then-CEO of FTX, appeared before the House Financial Services Committee in December 2021. Its chairwoman, Rep. Maxine Waters (D-CA), says she expects he testify again soon.

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Sam Bankman-Fried, then-CEO of FTX, appeared before the House Financial Services Committee in December 2021. Its chairwoman, Rep. Maxine Waters (D-CA), says she expects he testify again soon.

Alex Wong/Getty Images

Lawmakers watch the fallout from the sudden collapse of crypto firm FTX in awe.

“FTX wasn’t just another exchange,” according to Sen. Pat Toomey (R-PA), the senior member of the Senate Banking Committee, whose personal investments include cryptocurrency. “This is different.”

But so far, the response from Congress has been familiar.

Lawmakers released brief statements and relevant committees, including the House Financial Services Committee, Senate Banking Committee and Senate Agriculture Committee, promised to hold hearings. But there is still no clear path to comprehensive crypto legislation.

In an interview, Toomey blamed his colleagues for not doing more.

“I think Congressional inaction, along with inconsistency and confusion from regulators, has contributed to this problem,” he said.

“This time it’s different,” says Senator Patrick Toomey (R-PA), a senior member of the Senate Banking Committee, who is once again calling on his colleagues to pass comprehensive crypto legislation.

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“This time it’s different,” says Senator Patrick Toomey (R-PA), a senior member of the Senate Banking Committee, who is once again calling on his colleagues to pass comprehensive crypto legislation.

Kevin Dietsch/Getty Images

New uses for old laws

Thousands of FTX customers are desperately trying to recover money that could be gone for good and the whole world is eager to contain any damage resulting from the collapse of the multi-tentacled crypto exchange.

As lawmakers debate how to respond, regulators and law enforcement have opened investigations into the company, once valued at tens of billions of dollars.

FTX’s new CEO responded to “numerous requests” from the Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC) and federal prosecutors, according to a court filing.

But when it comes to digital assets, including cryptocurrencies, bureaucrats are locked in a turf war over who is responsible for overseeing what.

CFTC, top cop for the multi-trillion dollar derivatives market, says it should regulate bitcoin.

The SEC says most cryptocurrencies are securities, like stocks, and should be subject to the same rules. Its chairman, Gary Gensler, wants companies to provide investors with more information and be more upfront about the risk of digital assets.

On Monday, the chair and ranking member of the Senate Agriculture Committee, Sens. Debbie Stabenow (D-MI) and John Boozman (R-AR) announced a hearing: “Why Congress Must Act: Lessons from the FTX Collapse,” with Behnam.

The two senators are among the sponsors of a bill called the “Digital Commodities Consumer Protection Act,” which would assign more regulatory responsibilities to the CFTC. Notably, Bankman-Fried backed the legislation.

In the absence of new legislation, regulators have relied on existing laws, many of which predate the advent of crypto, hoping this will prevent the contagion from spreading.

During an onstage interview at a conference recently, CFTC Chairman Rostin Behnam said his agency has the tools it needs to ensure that crypto companies registered with his agency complied with its rules and regulations.

“We will use this authority to the fullest extent permitted by law,” he promised.

But many people and companies did not register with the government, even though regulators have encouraged them to do so.

Throughout his tenure at the SEC, Gensler has told the crypto industry that his door is open, and he and his colleagues are happy to talk about the regulations in place. Bankman-Fried has met with Gensler twice in the past, according to the president’s official schedule.

With encouragement from the White House, the SEC and CFTC have increased their efforts to crack down on bad actors in crypto in recent years. Both are able to sue and can impose fines and other penalties.

But more enforcement requires more resources, regulators say. So Benham and Gensler are not only asking Congress for more clarity on their crypto regulatory responsibilities, they also want bigger budgets.

“You know, it’s awful, and at the same time, it’s not that surprising,” Sen. Cynthia Lummis (R-WY), who chairs the Financial Innovation Caucus, discussed FTX’s collapse during of the Banking Committee hearing last week.

Lummis, which owns bitcoin, introduced a bill with Sen. Kirsten Gillibrand (D-NY) in June that was a comprehensive framework to regulate cryptocurrencies and other digital assets.

But its future remains uncertain. This bill was not presented to the Senate for a vote.