FTX Crypto Hearing Challenger Against Skeptics
Another day, another congressional committee hearing on the FTX crypto collapse.
Fresh off Tuesday’s (December 13) House Financial Services Committee hearing covering the collapse of cryptocurrency exchange FTX, the Senate Banking, Housing and Urban Affairs Committee held its own earlier Wednesday (December 14).
The House hearing Tuesday saw FTX Group’s newly installed CEO John J. Ray III sit through hours of testimony. The Senate banking hearing Wednesday had its own witnesses to grill, including a couple of celebrities and a couple of academics on either side of the crypto-as-something-value debate.
Imprisoned FTX founder Sam Bankman-Fried (SBF) was due to speak at Tuesday’s house hearing. His reported appearance before US lawmakers, speculated to be virtual, had the media buzzing.
Although he didn’t show, the media still had plenty of news to report following his unexpected arrest in the Bahamas on Monday night (December 12).
The arrest ruled out the possibility that SBF could give evidence under oath. Ray said having the old CEO answer questions from the legislature would have been “incredibly helpful” to the team’s bankruptcy investigation and restructuring process.
While SBF did not respond to an invitation to speak during Wednesday’s Senate hearing, the committee chairman, Sen. Sherrod Brown, D-Ohio, previously released a statement indicating that he was “prepared, along with Ranking Member Pat Toomey, to issue a subpoena to compel your testimony.”
That threat would ultimately prove to be the least of SBF’s legal worries this week.
Pro vs Con
The Senate hearing featured witnesses representing pro-crypto and anti-crypto factions.
On the pro-crypto side were FTX investor and spokesperson Kevin O’Leary, the “Shark Tank” star, and Jennifer J. Schulp of the Cato Institute, a DC-based think tank.
Representing the anti-crypto contingent were law professor Hilary J. Allen and actor Ben McKenzie Schenkkan. Schenkkan, who is best known as teenage heartthrob Ryan Atwood on “The OC,” has begun writing and is set to publish a book titled “Easy Money” next year.
“Blockchain technology is fundamentally unfit for purpose,” Allen told the Senate committee, going on to say that “it allows providers to benefit but provides nothing to consumers.”
Schenkkan invoked the Bernie Madoff scandal, which came to light 14 years ago this month, noting that Madoff defrauded, “37,000 clients, FTX has 32 times that in the US alone.”
He followed up by calling the entire crypto industry a “giant Ponzi scheme, where you’re either a fraud or a brand. And if you don’t know who you are, you have a problem.”
In response, Schulp sought to clarify to the pro-crypto side that “the problems with FTX do not appear to be intrinsically linked to cryptocurrencies or other blockchain technologies,” and urged lawmakers to separate “decentralized projects from centralized exchanges.”
O’Leary stated: “I am of the opinion that crypto, blockchain and digital payment systems will be the 12th sector of the S&P in the near future.”
He described the industry as “culling its herd”, and emphasized the importance of strengthening and supporting US dominance in the emerging landscape. “The power is very usable and we should lead the world,” O’Leary said.
Consumer and investor protection
In his opening remarks, Senator Brown highlighted the need to protect investors from “shiny objects and unregulated financial products”.
“Digital assets are not on trial, fraud and organizations are on trial,” Sen. Cynthia Lummis, R-Wyo., added.
The Committee’s questioning of the four witnesses was generally aimed at understanding the distinction between monetary crypto and technological crypto, as well as digging for greater clarity on the kinds of disclosures necessary to ensure that consumers and investors understand how the digital assets they invest in, or the crypto platforms they trust their money to actually work.
If the United States could boast a “well-defined regulatory regime, we would have exchanges competing here for business with defined controls,” Schulp told the committee.
The “crypto price” is to be regulated and licensed, O’Leary added.
Ricochet photos taken on Binance
O’Leary, who has sparred with the CEO and founder of FTX’s one-time rival exchange Binance on Twitter also used his time before the committee to claim that “Binance put Sam out of business on purpose.”
Several senators, including Sen. Elizabeth Warren, D-Mass., also took shots at the legitimacy of the world’s largest cryptocurrency exchange, while invoking the specter of money laundering and terrorist financing.
As reported by PYMNTS, Binance has been making headlines recently among asset withdrawals as it becomes a magnet for the fear, uncertainty and doubt surrounding the broader crypto industry.
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