The US Senate Banking Committee discussed last year’s cryptocurrency market crash and the collapse of a diversified company during a hearing on Tuesday, February 3. 14.
President Brown calls for regulations
Several individuals have commented on the state of the cryptocurrency industry. Chairman Sherrod Brown has taken a hard line on the matter, saying:
“These crypto debacles have exposed what many of us already know: digital assets… are speculative products run by reckless corporations that put Americans’ hard-earned money at risk. Not surprisingly from an industry created to get around the rules.”
In his opening statement, Brown said the cryptocurrency market lost $1.46 trillion in 2022, while cybercriminals stole $3 billion and companies cut 1,600 jobs (a number other estimates put as high as 23,600). He also mentioned the crypto industry’s absence from this year’s Super Bowl and discussed the extent of FTX’s collapse.
Brown noted that while the crisis did not spread to the broader financial system, this possibility was “identified” when many crypto banks needed loans after bank runs.
He suggested that the “logical underlying principles” applied elsewhere should be imposed on the cryptocurrency industry. Its recommendations included consumer protection, conflict of interest prevention, and transparency requirements.
Scott calls for enforcement of the SEC
Ranked member Tim Scott suggested there is room for safe financial innovation, but acknowledged Brown’s concerns about the current regulatory situation.
Specifically, Scott criticized the SEC’s attempts to enforce regulation during the market crash of 2022. He said:
“The SEC failed to take any meaningful proactive action to ensure this type of catastrophic failure never happens again.”
Scott said investors need to know why the SEC took no action before FTX collapsed and why millions of dollars in cryptocurrency investments 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.
Although the SEC has taken action against many crypto companies, it has mostly done so after said companies have gone under. Many high-profile companies are still involved in bankruptcy proceedings and have not returned the money to their customers.
Scott also noted that SEC Chairman Gary Gensler was absent during today’s Senate hearing despite appearing publicly. He said Gensler “needs to be here testifying with us this morning” and said Congress “needs to hear from him very soon.”
Witnesses commented on the industry
Three witnesses also gave their statements during the session.
Lee Reiners, director of policy at the Duke Financial Economics Center, pointed out that some cryptocurrencies are commodities rather than securities. The CFTC regulates commodity derivatives, not commodity spot markets like cryptocurrency exchanges. As such, Reiners urged Congress to fill that regulatory gap and develop options for doing so.
Yesha Yadav, a professor at Vanderbilt University School of Law, suggested that a general regulatory framework could allow cryptocurrency exchanges to partially self-regulate. This will cause companies to fund their regulatory efforts and save costs for taxpayers.
Linda Ging, professor of international economic law at the Georgetown Institute, suggested that the supposed “crash of cryptocurrencies” should be contextualised. She said that the entire industry should not be declared a failure due to the collapse of some companies. She added that the cryptocurrency market cap is still greater than $1 trillion, and noted that full-time cryptocurrency developers grew 8% year-on-year in 2022.
The prepared remarks from each speaker did not focus on high-profile actions in recent days, such as those against Kraken’s staking service or Paxos’ BUSD stablecoin. These developments will undoubtedly be the subject of future discussions.