The cryptocurrency sector has rebounded this year as its market capitalization returned above $1 trillion. Bitcoin prices have rallied more than 30 percent, Ethereum has risen 29 percent, and even Dogecoin has surged close to 20 percent.
But, according to U.S. lawmakers and regulators, the damage has been done to consumers and investors during last year’s crypto winter, and regulations must be adopted to prevent another situation of malfeasance like FTX, Alameda Research, and the Sam Bankman-Fried.
Time for Crypto Regulations?
Sen. Sherrod Brown (D-Ohio), who is also the committee chairman, repeated the same concerns that governments and central banks espoused a decade ago: cryptocurrencies can be used for illicit activities, such as drug running and human trafficking, and can lead to fraudulent activity.“Contrary to crypto evangelists’ claims of democratizing finance, it’s not the early adopters are the big money investors left holding the bag when it comes to crypto,” said Brown in his opening remarks. “It turns out fortune doesn’t favor the brave. It favors wealthy insiders. It’s not just about a few bad actors that didn’t do things quite the right way. These crypto catastrophes have exposed what many of us already knew about digital assets, cryptocurrency, and stablecoins. Investment tokens are speculative products run by reckless companies.”
With the help of three witnesses, officials assessed the needs and benefits of instituting a regulatory framework for the crypto industry to protect investors and savers.
“The practical effect of that structure is that cryptocurrency exchanges in the United States are presently not regulated at the federal level. That is a gap that Congress must close as soon as possible,” said Lee Reiners, a policy director at Duke Financial Economics Center.
According to Yesha Yadav, a Vanderbilt University Law School professor, this is a terrific opportunity to establish and impose necessary regulations to identify the risks of digital asset innovation.
“Applying the old adage to never let a good crisis go to waste, this current moment in financial markets regulation offers a unique opportunity to develop a thoughtful, robust, and protective framework of rules and standards to address the risks and opportunities of digital asset innovation,” Yadav told lawmakers.
But not everyone is convinced that additional regulation is the answer to the challenges within the crypto industry.
Sen. Tim Scott (R-S.C.), a ranking member of the Senate committee, asserted that federal regulators already possessed the tools to clamp down on a company like FTX.
Although the Securities and Exchange Commission (SEC) previously noted that cryptocurrency firms are required to comply with existing regulations, the senator purported that “it is also the responsibility of regulators to enforce existing regulations and to conduct appropriate, effective supervision.”
“The American people deserve to know why no action was taken prior to FTX collapse and how millions of dollars of Americans hard-earned money just vanished into nothing,” he said.
Where Was Gary Gensler?
SEC Chair Gary Gensler was notably absent from the Senate Banking Committee hearing on Tuesday, which Sen. Scott observed.“If Chairman Gensler is going to take action enforcement action, Congress needs to hear from him very soon. The chairman had lots of time to do the rounds in the morning talk shows if he has time for that. He should be here testifying with us this morning. And I hope that we see him here very soon,” he stated.
House Republicans plan to investigate the SEC’s role in the arrest of Bankman-Fried.
“Presumably, the SEC’s Division of Enforcement did a complete investigation into the actions by Sam Bankman-Fried and presented the findings to the commission for its review and to authorize the charges. Yet, the timing of the charges and his arrest raise serious questions about the SEC’s process and cooperation with the Department of Justice,” wrote McHenry and Huizenga.
“The American people deserve transparency from you and your agency.”
Last month, the disgraced ex-CEO of FTX pleaded not guilty to eight criminal charges that he cheated and looted investors in his crypto exchange.
