The conviction of ex cryptocurrency Magnate Sam Bankman-Frito for stealing at least $10 billion from customers and investors is the latest black mark for the cryptocurrency industry, but in Washington there appears to be little to no interest in pushing for regulation.
When cryptocurrencies crashed and several companies went bankrupt last year, Congress considered multiple approaches to how to regulate the industry in the future. However, most of those efforts have gone nowhere, especially in this chaotic year dominated by geopolitical tensions, inflation and the upcoming 2024 elections.
Ironically, the failure of Bankman-Fried ftx and his subsequent arrest late last year may have contributed to stalling the push for regulation. Before FTX imploded, Bankman-Fried spent millions of dollars (turns out they were illegally taken from his clients) to influence the discussion over cryptocurrency regulation in Washington and drive action.
Without Congress, federal regulators like the Securities and Exchange Commission have stepped in to take their own enforcement actions against the industry, including filing lawsuits against Coinbase and Binance, two of the largest cryptocurrency exchanges.
And most recently, PayPal received a subpoena from the SEC related to its PayPal USD stablecoin, the company said in a filing with securities regulators on Wednesday. “The subpoena requests the production of documents,” the company said. "We are cooperating with the SEC regarding this request."
Still, Congress has yet to act.
Sens. Debbie Stabenow, D-Mich., and John Boozman, R-Ark., last year proposed handing regulatory authority over cryptocurrencies bitcoin and ether to the Commodity Futures Trading Commission. Stabenow and Boozman head the Senate Agriculture Committee, which has authority over the CTFC.
A major obstacle in the Senate has been Sen. Sherrod Brown, D-Ohio, chairman of the Senate Banking Committee.
Brown has been highly skeptical of cryptocurrencies as a concept and has generally been reluctant to give them Congress's blessing through regulation. He has held several committee hearings on cryptocurrency issues, ranging from the negative impact on consumers to the use of the coins to finance illicit activities, but has not introduced any legislation outside of his committee.
“Americans continue to lose money every day to cryptocurrency scams and fraud,” Brown said in a statement after Bankman-Fried was convicted. “We need to crack down on abuses and we cannot allow the crypto industry to write its own rule book.”
In the House, a bill that would put regulatory barriers around stablecoins (cryptocurrencies that are supposed to be backed by hard assets like the US dollar) was passed by the House Financial Services Committee this summer. But that bill has garnered no interest from the White House and Senate.
Last year, President Joe Biden signed an executive order on government oversight of cryptocurrencies that calls on the Federal Reserve to explore whether the central bank should step in and create its own digital currency. However, so far there has been no movement on that front.
Consumer advocates are skeptical about the need for new rules.
"There is no need for any special interest crypto legislation that would only legitimize an industry that is used by speculators, financial predators and criminals," said Dennis Kelleher, president of Better Markets, a nonprofit organization working to "build a system safer financial situation. system for all Americans,” according to his website.
“Furthermore, almost everything the cryptocurrency industry does is clearly covered by the existing securities and commodities laws that every other law-abiding financial company in the country follows,” he said.
Bartlett Collins Naylor, financial policy advocate for Public Citizen's Congress Watch, said "fraud and securities laws are currently strong."
Meanwhile, cryptocurrency advocates are quick to point out that it was Bankman-Fried who was put on trial, not the entire industry.
“As the jury concluded, this was a clear case of fraud committed by a small group of people,” said Sheila Warren, executive director of the Crypto Council for Innovation. “It is an unrelated fact that the United States needs regulatory clarity in the digital assets space. “Policymakers focused on this reality before this trial and will continue to focus on it in the future.”
The increasing "banking" of cryptocurrencies created the need for regulators to enter the space to prevent collapses like FTX, which ultimately collapsed in the equivalent of a bank run, from affecting the broader stock market or leaving destitute retail investors. .
Canadian regulators learned that lesson with the implosion of Quadriga, which vaporized $169 million in client funds when it collapsed in 2018. An Ontario Securities Commission review found the company operated as a Ponzi scheme and concluded in a 2020 report that what happened at Quadriga “was an old-fashioned fraud wrapped in modern technology.”
In response, provincial securities regulators have been remarkably coordinated in their response to cryptocurrency exchanges, focusing on intermediaries as they set rules on the need for third parties to own cryptocurrency assets, insurance requirements, and limits on what can be negotiated. .
The rules mean that some of the alleged practices at FTX, including the use of client funds for the company's trading operations, would not be allowed on exchanges registered in Canada.
—With additional files from the Canadian Press.
© 2023 The Canadian Press
