The conviction of former cryptocurrency mogul Sam Bankman-Fried for stealing at least $10 billion from customers and investors has renewed calls for regulation of the industry, but Washington seems to have no intention of moving forward with the initiative.
Last year, when cryptocurrencies collapsed and several companies went under, the U.S. Congress considered a number of ways to regulate the industry in the future. However, most of these efforts came to nothing, especially in a chaotic year dominated by geopolitical tensions, inflation, and the upcoming 2024 election.
Ironically, the failure of Bankman Freed’s FTX company and his arrest late last year may be one of the reasons why regulatory momentum has stalled. Prior to FTX’s collapse, Bankman-Fried spent millions of dollars (allegedly illegally taken from customers) to influence the debate in Washington on cryptocurrency regulation and push for action.
In the absence of Congress, federal regulators such as the U.S. Securities and Exchange Commission (SEC) have stepped in to take enforcement action against the industry, including filing lawsuits against the two largest cryptocurrency exchanges, Coinbase and Binance.
However, the U.S. Congress has yet to act.
Senators Debbie Stabenow (Democrat, Michigan) and John Boozman (Republican, Ohio) proposed last year that regulation of the cryptocurrencies bitcoin and ethereum be transferred to the Commodity Futures Trading Commission (CFTC). Stabenow and Boozman lead the Senate Agriculture Committee, which has the authority to regulate the CFTC.
The chairman of the Senate Banking Committee, Sen. Sherrod Brown (D-Ohio), is a major stumbling block in the Senate. Brown has been highly skeptical of the concept of cryptocurrencies, and he has generally been reluctant to pass regulation to gain support in Congress. He has held numerous hearings on cryptocurrencies, which have ranged from the negative impact on consumers to the use of cryptocurrencies to fund illegal activities, but his committee has yet to introduce any legislation.
This summer, the House Financial Services Committee passed a bill that would put regulatory guardrails on stablecoins, cryptocurrencies that should be backed by hard assets like the U.S. dollar. But the White House and Senate showed no interest in the bill.
President Joe Biden signed an executive order on government regulation of cryptocurrencies last year, urging the Federal Reserve to explore whether the central bank should step in and create its own digital currency. But so far, there has been no progress on that front.
Consumer advocates are skeptical about the need for new rules.
Dennis Kelley, president of Better Markets, a nonprofit organization dedicated to “building a safer cryptocurrency market,” said, “There’s no need for any crypto legislation that involves special interests, which would only legitimize an industry that’s being taken advantage of by speculators, financial predators, and criminals. “Better Markets is an Dennis Kelleher, president of Better Markets, a nonprofit organization dedicated to “building a safer cryptocurrency marketplace,” said.
“Furthermore, almost everything the cryptocurrency industry does is already explicitly covered by existing securities and commodities laws, and all other law-abiding financial companies in the country comply with those laws,” he said.
“The current laws regarding fraud and securities are sound,” said Bartlett Collins Naylor, a financial policy advocate at Public Citizen’s Congress Watch.
Meanwhile, cryptocurrency advocates are quick to point out that it’s Bankman Fried on trial, not the industry as a whole.
“The jury found that this was a clear case of fraud perpetrated by a small group of people,” said Sheila Warren, CEO of the Cryptocurrency Innovation Council.” It doesn’t matter that the U.S. needs clarity on regulation in the digital asset space. Policymakers were on notice of this reality before this trial and will continue to do so.”
