FTX Collapse Sparks Alarm From US Lawmakers
The dramatic collapse of crypto exchange FTX has – perhaps naturally – sparked a number of calls for greater regulation or faster legislative action from leading U.S. lawmakers.
FTX CEO Sam Bankman-Fried revealed earlier this week that his exchange had "liquidity crunches." Later reporting suggested FTX had comingled customer funds with Alameda Research, another company founded by Bankman-Fried. FTX has a nearly $10 billion hole and froze withdrawals on its exchange. FTX US, a related entity, similarly warned its customers that it may also freeze trading in the coming days.
A number of lawmakers have published statements expressing concern about the situation.
Sen. Sherrod Brown (D-Ohio), who chairs the Senate Banking Committee, said in a statement:
“The recent collapse of FTX is a loud warning bell that cryptocurrencies can fail, and just like we saw with over-the-counter derivatives that led to a financial crisis, these failures can have a ripple effect on consumers and other parts of our financial system. The cryptocurrency market’s continued turmoil is why we must think carefully about how to regulate cryptocurrencies and their role in our economy. 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. I will continue to work with them to hold bad actors in crypto markets accountable. I’m committed to finding the best path forward to protect consumers and the stability of the U.S. markets and banking system.”
Sen. Patrick Toomey (R-Pa.), the ranking member on the Senate Banking Committee, tweeted:
It seems FTX’s foreign exchange was acting in ways that put customer funds at significant risk.— Senator Pat Toomey (@SenToomey) November 10, 2022
Given that traditional financial exchanges generally operate much differently, I imagine many FTX customers were not well informed (if at all) about the firm’s debatable actions.
"The crypto sector has been operating with far too much ambiguity because (a) regulators refuse to give well-meaning actors clear guidance and (b) lawmakers refuse to act," he said later in the thread.
Rep. Maxine Waters (D-Calif.), who chairs the House Financial Services Committee, said in a statement:
“The recent fall of FTX.com – a major international cryptocurrency trading platform – is just the latest example in a string of incidents involving the collapse of cryptocurrency companies and the impacts these failures have on consumers and investors. Although FTX’s U.S.-facing company is reportedly operational, FTX’s FTT tokens are now worthless, and even worse, FTX.com customers are completely unable to access their funds. Now more than ever, it is clear that there are major consequences when cryptocurrency entities operate without robust federal oversight and protections for customers."
"For four years, under my leadership as Chairwoman, the Committee on Financial Services has led the way in examining and investigating the cryptocurrency marketplace. This includes the Committee’s formation of Congress’ first-ever Task Forces on Financial Technology and Artificial Intelligence, along with the working group on digital assets. In addition, for several months, I've been working around the clock with Ranking Member Patrick McHenry to craft bipartisan legislation that establishes a federal framework for stablecoins in order to begin building the safeguards needed to protect customers’ assets and insulate our financial markets from contagion. This week’s news further highlights the urgent need for legislation.”
Rep. Patrick McHenry (R-N.C.), the ranking member on the House Financial Services Committee, said in a statement:
“For years, I have advocated for Congress to develop a clear regulatory framework for the digital asset ecosystem, including trading platforms. The recent events show the necessity of Congressional action. It’s imperative that Congress establish a framework that ensures Americans have adequate protections while also allowing innovation to thrive here in the U.S. I look forward to learning more from FTX and Binance in the coming days about these events and the steps they will take to protect customers during the transition.”
Sen. John Boozman (R-Ark.), the ranking member on the Senate Agriculture Committee and a co-sponsor of the Digital Commodities Consumer Protection Act, said in a statement:
"The events that have transpired this week reinforce the clear need for greater federal oversight of the digital asset industry."
"That has been our goal since we began drafting the Digital Commodities Consumer Protection Act of 2022. Working closely with our colleagues, financial regulators, academics and a wide array of industry participants, we introduced a robust bill that aims to bring transparency and accountability to the market."
"In light of these developments, we are taking a top-down look to ensure it establishes the necessary safeguards the digital commodities market desperately needs."
"Chairwoman [Debbie Stabenow (D-Mich.)] and I remain committed to advancing a final version of the DCCPA that creates a regulatory framework that allows for international cooperation and gives consumers greater confidence that their investments are safe."
"While our legislative work continues, the Commodities and Futures Trading Commission already has the ability to regulate and prosecute fraud, manipulation and abuse. I strongly encourage them to actively exercise those authorities when necessary."
Sen. Cynthia Lummis (R-Wyo.), who sits on the Senate Banking Committee, said in a statement:
“The recent events that have transpired between FTX and Binance are the clearest example yet of why we need clear rules of the road for digital asset exchanges in the United States” said Sen. Lummis. “Market manipulation, lending activity, and whether customer funds and assets were appropriately safeguarded are just a few of the many issues my colleagues and I need to consider in the coming days. Transparent and fair exchange regulation, which is provided for in the Lummis-Gillibrand Responsible Financial Innovation Act, is essential to ensuring customers are protected while still promoting responsible innovation.”
Sen. Elizabeth Warren (D-Mass.), who sits on the Senate Banking Committee, tweeted:
The collapse of one of the largest crypto platforms shows how much of the industry appears to be smoke and mirrors. We need more aggressive enforcement and I'm going to keep pushing @SECGov to enforce the law to protect consumers and financial stability.https://t.co/uOPi8MV25J— Elizabeth Warren (@SenWarren) November 10, 2022
Warren's tweet in particular provoked a backlash from a number of crypto executives, including the CEO of publicly-traded Coinbase Brian Armstrong, who said U.S. regulators pushed crypto traders offshore by not providing clear rules for companies to abide by.
SEC Chair Gary Gensler has on numerous occasions said he believes crypto exchanges should register as national securities exchanges, though he has stopped short of saying whether the agency would force companies to do so.
Crypto exchanges like Coinbase have been resistant to this call.