Digital asset industry comes under fire during US Senate hearing on ‘Crypto Crash’

The cryptocurrency industry came under fire from US lawmakers during a Senate Banking, Housing and Urban Affairs Committee hearing on Tuesday titled “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets.”

See related article: Be careful what you wish for? Regulators are picking up the pace in the crypto industry

Fast facts

• “While crypto contagion did not infect the broader financial system, we glimpsed the damage it could have done if crypto migrated into the banking system,” committee chairman Senator Sherrod Brown said in his opening remarks, referring to the collapse of Bahamas-based crypto exchange FTX.com in November.

• “These crypto disasters have revealed what many of us already knew: Digital assets — cryptocurrencies, stablecoins and investment tokens — are speculative products run by unscrupulous companies that put Americans’ hard-earned money at risk,” he said.

• The hearing covered topics ranging from stablecoin regulation, consumer protection and how the Securities and Exchange Commission (SEC) should work with the Commodity Futures Trading Commission to regulate digital assets.

• Lee Reiners, policy director at the Duke Financial Economics Center, said crypto is undermining US national security and no longer bears much resemblance to what Bitcoin’s pseudonymous creator Satoshi Nakamoto envisioned when he developed the technology.

• Others took a more positive stance, such as Senator JD Vance, who warned regulators not to “destroy the dynamic upside of the digital asset world.”

• Senator Tim Scott appealed to Securities and Exchange Commission (SEC) Chairman Gary Gensler to appear before Congress to address enforcement actions by the agency in recent weeks.

• On Thursday, crypto exchange Kraken shut down its crypto staking program and paid a $30 million fine after the SEC said the program violated securities laws.

• Shortly after, Paxos Trust Company stopped minting the Binance USD (BUSD) stablecoin, which has a security of USD 16 billion, following orders from the New York Department of Financial Services.

• The hearings also follow calls from the White House to step up efforts to regulate the growing industry, which warned that it would be a “serious mistake” to pass legislation that would deepen ties between crypto and traditional finance because of the risks to broader financial infection in a crisis.

See related article: Hold on to your crypto bags, the regulators are coming