The U.S. Senate Banking Committee discussed last year’s cryptocurrency market crash and several corporate bankruptcies at a hearing on Tuesday, February 14. Here are the details…
Cryptocurrency regulation call from US Banking Committee
Several people have commented on the state of the cryptocurrency industry. President Sherrod Brown took a tough stance on the issue. “These crypto disasters exposed what most of us already knew: crypto assets… speculative products run by reckless companies that put Americans’ hard-earned money at risk. “Not surprising for an industry built to break the rules.”
In his keynote, Brown said that the crypto market lost $1.46 trillion in 2022, cybercriminals stole $3 billion, and companies laid off 1,600 jobs (other estimates put the figure as high as 23,600). He also pointed to the crypto industry’s absence from this year’s Super Bowl and discussed the extent of FTX’s collapse.
Brown noted that although the crisis did not spread to the wider financial system, that possibility was seen “for a moment” when several crypto banks needed loans after bank liquidations. He suggested that “fundamental, common sense principles” applied elsewhere should be imposed on the crypto industry. His recommendations included consumer protection, conflict of interest prevention and transparency requirements.
Scott calls for SEC enforcement
Tim Scott, another senate member, suggested there was room for secure financial innovation, but acknowledged Brown’s concerns about the current regulatory state. Scott was particularly critical of the U.S. Securities and Exchange Commission’s (SEC) regulatory enforcement initiatives during the market crash in 2022. Scott used the following statements:
The SEC has not taken any meaningful, preventive action to ensure that such a catastrophic failure does not happen again.
Scott said investors should know why the SEC didn’t take action before FTX crashed and why millions of dollars in cryptocurrency investment can no longer be recovered. He added that this concern applies to other companies and projects such as Terra, Celsius, Voyager Digital and BlockFi, all of which failed in 2022.
SEC Chairman didn’t go to Senate hearing
While the SEC has taken action against many crypto companies, it has usually done so after the collapse of those companies. Some major companies continue to file for bankruptcy and have not refunded their customers. Scott also observed that SEC chairman Gary Gensler was not present at today’s Senate hearing. He said Gensler “should have testified with them there that morning,” and that Congress “should have heard from him very soon.”
Three witnesses testified at the trial. Lee Reiners, a policy director at the Duke Center for Financial Economics, noted that some cryptocurrencies are commodities rather than securities. The CFTC regulates commodity derivatives, not commodity spot markets like crypto exchanges. As such, Reiners urged Congress to close this regulatory loophole and put forward options for doing so.
Jeng: The entire cryptocurrency industry should not be declared a failure
Vanderbilt University Law School professor Yesha Yadav has suggested that a public regulatory framework could allow crypto exchanges to partially self-regulate. This will enable companies to fund their regulatory efforts and save costs for taxpayers. Linda Jeng, a professor at the Georgetown Institute of International Economic Law, suggested that this situation should be placed in the context of a “crypto collapse.”
He said the entire industry should not be declared a failure because certain companies went bankrupt. He added that the cryptocurrency market cap is still more than $1 trillion, and he observed that full-time crypto developers grew 8 percent year-over-year in 2022. The statements each speaker prepared did not focus on recent actions such as those against Kraken’s staking service or Paxos’ BUSD stablecoin. cryptocoin.com As we reported, NYFDS ordered Paxos to stop issuing BUSD.
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