The collapse of crypto exchange FTX and other bearish events in the space were at the center of discussions among lawmakers and witnesses at the inaugural hearing of the United States House Committee on Financial Services’ Subcommittee on Digital Assets, Financial Technology and Inclusion.
Addressing lawmakers at the March 9 hearing, BitGo co-founder and CEO Mike Belshe criticized the U.S. Securities and Exchange Commission, or SEC, for enforcement actions against crypto firms “trying to do it right” — i.e. communicating with regulators and pursuing a path to operate in the country. He cited BitGo’s experience going through the process of approaching the SEC in 2018 seeking a regulatory path forward on the question of how the firm should custody assets, only to wait more than 4 years for a definitive answer.
According to Belshe, the SEC’s reluctance to address a “basic” regulatory issue like the issuance of a Bitcoin (BTC) exchange-traded fund could have seemingly opened the door for bad actors like Sam Bankman-Fried to operate FTX as he did. The former CEO faces charges from the SEC, Commodity Futures Trading Commission, and federal prosecutors related to transferring user funds between the exchange and Alameda Research.
“You do have to wonder if we couldn’t have avoided the massive amounts of money that flowed to FTX if the basic principle of a Bitcoin ETF had been provided and approved by the SEC,” said Belshe. “There had been 25+ valid applications — some from Invesco and other reputable firms that have done ETFs for many years in the past.”
Much of the discussion among lawmakers and industry experts at the hearing centered around which federal agencies could regulate certain crypto assets should Congress pass related legislation. Some Republican representatives seemed to be particularly critical of the Biden administration’s approach to crypto, as evidenced in the hearing’s title calling its actions an “attack on the digital asset ecosystem”.
“This report summarizes President Biden’s political plan to lawlessly abuse the administrative state to push American crypto firms and their United States customers into offshore, unregulated, opaque and unsafe markets,” said Representative Tom Emmer, citing a Jan. 27 report from the White House on mitigating the risks associated with crypto. “This administration is weaponizing the banking sector to debank legal crypto activity here in the U.S., using scare tactics to run an entire industry out of the country.”
— Financial Services GOP (@FinancialCmte) March 9, 2023
Other witnesses at the hearing were more critical of crypto as a whole rather than focusing on blaming any single agency, political party, or presidential administration. Representative Brad Sherman, a well known critic of the space, referred to crypto as a “scourge” in the economic system. Lee Reiners, the policy director of the Duke Financial Economics Center, claimed though FTX was one “bad apple”, the entire crypto industry was “rotten”.
“Crypto and the unique nature of crypto was what fueled FTX’s rise, and it’s what made FTX collapse in the blink of an eye,” said Reiners.
The House subcommittee hearing was the first in the new session of Congress to address issues related to the crypto market and the collapse of FTX since December 2022. Lawmakers with the Senate Banking Committee held their own hearing exploring the impact of the ‘crypto crash’ in February.