Democratic lawmakers and agency officials are calling for more regulations on cryptocurrencies after one of the largest exchanges neared collapse.
Crypto critics are ramping up pressure for new rules after the apparent collapse of the exchange FTX, which is facing a mass loss of confidence amid reports of deceptive conduct and is seeking to be acquired in order to reassure customers and investors that they will get their money back. Its struggles have caused the crypto market to slump in value and led to government investigations.
“The collapse of one of the largest crypto platforms shows how much of the industry appears to be smoke and mirrors,” Sen. Elizabeth Warren (D-MA) tweeted on Wednesday. “We need more aggressive enforcement, and I’m going to keep pushing to enforce the law to protect consumers and financial stability.”
Other Democrats called for legislation. “Now more than ever, it is clear that there are major consequences when cryptocurrency entities operate without robust federal oversight and protections for customers,” House Financial Services Committee Chairwoman Maxine Waters (D-CA) said in a statement Thursday. Waters noted that she has been working on legislation to regulate the industry and that last week’s developments “highlight the urgent need for legislation.”
Waters’s legislation would form a task force on financial technology as well as establish a federal framework that would establish safeguards for the trading of stablecoins, which are digital currencies that hold value based on fixed assets.
“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,” Senate Banking Committee Chairman Sherrod Brown (D-OH) said in a statement. “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.”
The Securities and Exchange Commission and the Department of Justice are coordinating to manage the fallout from FTX’s collapse. The company had been scheduled to be acquired by Binance on Monday, only for Binance to pull out after FTX founder Sam Bankman-Fried withheld the company’s U.S. operation from the acquisition. The deal caused FTX to freeze withdrawals from the platform.
Crypto investors need better protections in a “significantly non-compliant” space, SEC Chairman Gary Gensler told CNBC.
“The runway is running out. Investors around the globe are getting hurt,” Gensler added. The SEC chairman has long argued that more crypto assets should be considered securities, meaning that they would be regulated by the agency. Bankman-Fried, the second-largest Democratic donor in the last year, has pushed for new regulations.
Leaders in the crypto industry said that lawmakers had an equal role to play in the failure of FTX. The reason the offshore exchange failed was that “the SEC failed to create regulatory clarity here in the U.S., so many American investors (and 95% of trading activity) went offshore,” argued Coinbase CEO Brian Armstrong. Other CEOs quickly echoed Armstrong’s remarks, noting that a lack of rules has made the U.S. less appealing than Singapore, which has regulations for crypto.
The fallout from the end of the FTX-Binance deal had detrimental effects on the crypto market. Bitcoin saw its value drop 17% on Wednesday, compared to the day before. Ethereum, the second-largest cryptocurrency by market cap, shed more than 25% of its value on Wednesday.