Senate Banking Committee Holds Tense Crypto Hearing
Skeptical members of the Senate Banking Committee will hear from both crypto-believers in a Valentine’s Day hearing to try to understand the recent “crypto crash” and advocates for new, more onerous regulatory safeguards to protect consumers. The hearing comes at a pivotal time for cryptocurrencies. Scandals, fraud, dramatic arrests, international manhuntsand “plain old fashioned embezzlement” has sent crypto valuations plunges and soured relations between the decentralized finance elite and US lawmakers. In some cases, top financial officials like SEC Chairman Gary Gensler have given crypto companies an ultimatum: regulate or die.
“If this field has any chance of survival and success,” Gensler recently told CNBC. “There are proven rules and laws to protect investors.”
Tuesday hearing may provide the clearest picture yet of how far lawmakers on both sides of the aisle are willing to go to reign in cryptocurrency firms. Lawmakers are likely to spend a good deal of time highlighting so-called stablecoins tied to the US dollar. The suddenness collapse of Terra, Luna and other supposedly safe stablecoins last year drew intense scrutiny from lawmakers and Treasury Secretary Janet Yellen, who said she believed their unpredictability can “threaten financial stability” in the wider economy.
Lawmakers will question three expert witnesses, including Linda Jeng, chief global regulatory officer and general counsel for major crypto group Crypto Council for Innovation. Jeng, who will testify in his personal capacity as an academic and researcher, is expected to try to separate the broader crypto space from specific bad actors like FTX’s Sam Bankman-Fried, and call for precise, nuanced and possibly light-handed regulation to come.
“This is a key moment for our transition to a digital economy,” Jeng said in her written testimony. “We are at a decision point where how we build our legal and regulatory foundation will determine our digital future for decades to come.
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The other two witnesses, Duke Financial Economics Center Policy Director Lee Reiners and Vanderbilt University Law School Professor Yesha Yadav has spoken more critically about crypto companies. Reiners will urge the SEC to regulate cryptocurrencies and securities while Yadavis was expected to advocate in favor of a public mandate for private individuals self-regulation of cryptocurrency exchanges.
If all of this sounds a little familiar, that’s because lawmakers on The House Financial Services Committee collected two months ago to discuss the epic collapse of FTX and its disgraced founder SBF. Lawmakers had intended to grill SBF, but his sudden arrest in the Bahamas just days before left them questioning court-appointed FTX chief John Ray III. Ray, who previously oversaw the Enron bankruptcy, blamed the sudden fall of FTX last month on the absolute concentration of control by a small group of “grossly inexperienced and unsophisticated individuals” led by SBF.
Crypto companies, especially those with stablecoins, are under intense scrutiny for Terra, Luna and FTX
Just this week, the New York Department of Financial Services ordered Paxos stops minting new units of the Finance USD stablecoin. Making matters worse, a recent one The Wall Street Journal report claims Paxos may soon face an SEC lawsuit over the stablecoin. Taken together, these events prompted Binance CEO Changpeng Zhao to say that Binance would begin to see users “moving away” from the Binance stablecoin.
Just days before, failing crypto exchange Kraken revealed it would pay over $30 million more make up SEC allegations that claimed the company’s crypto “staking” service was actually an illegal sale of securities. At the same time, the DOJ’s fraud investigators are allegedly begins a criminal investigation into Silvergate Capital’s dealings with FTX and Alameda Research.
The sudden influx of regulatory actions and interest had led to a regulatory allergic crypto pusher.
