Another day, another congressional committee hearing on the FTX crypto collapse.
Fresh off of Tuesday’s (Dec. 13) House Financial Services Committee hearing covering the collapse of cryptocurrency exchange FTX, the Senate Committee on Banking, Housing, and Urban Affairs held its own earlier Wednesday (Dec. 14).
The House’s hearing Tuesday saw FTX Group’s newly installed CEO John J. Ray III sit through hours of testimony. The Senate Banking hearing Wednesday had their own witnesses to grill, including a pair of celebrities and a pair of academics on either side of the crypto-as-something-valuable debate.
Jailed FTX founder Sam Bankman-Fried (SBF) was supposed to speak at Tuesday’s House hearing. His reported appearance before U.S. lawmakers, speculated to be virtual, had the media buzzing.
While he didn’t show, the media still had plenty of news to report following his unexpected arrest in the Bahamas Monday night (Dec. 12).
The arrest precluded the potential of SBF giving testimony under oath. Ray said having the old CEO answer lawmaker questions would have been “incredibly helpful” to his team’s bankruptcy investigation and restructuring process.
While SBF failed to reply to an invitation to speak at Wednesday’s Senate hearing, the committee chair, Sen. Sherrod Brown, D-Ohio, had previously released a statement indicating that he was “prepared, along with Ranking Member Pat Toomey to issue a subpoena to compel your testimony.”
In the end, that threat would 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 D.C.-based think tank.
Representing the anti-crypto contingent were law professor Hilary J. Allen and the actor Ben McKenzie Schenkkan. Schenkkan, who is best known as the teen heartthrob Ryan Atwood on “The O.C.,” has taken to 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 amount in the U.S. alone.”
He followed up by calling the entire crypto industry one “giant Ponzi scheme, where you are either a scammer or a mark. And if you don’t know which you are, you have a problem.”
In response, Schulp sought to clarify for the pro-crypto side that, “the issues with FTX do not appear to be intrinsically tied to cryptocurrencies or other blockchain technologies,” and urged lawmakers differentiate “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 underscored the importance of empowering and supporting American dominance in the nascent landscape. “The power is very harnessable, and we should lead the world,” O’Leary said.
Consumer and Investor Protection
In his opening remarks, Sen. 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 geared toward understanding the distinction between money crypto and tech crypto, as well as digging for greater clarity around the kinds of disclosures necessary to ensure that consumers and investors understand how the digital assets they are investing in, or the crypto platforms they are trusting their money to, actually work.
If the U.S. boasted a “well-defined regulatory regime, we’d have exchanges competing here for business with defined controls,” Schulp told the committee.
The “prize of crypto” is to get regulated and licensed, O’Leary added.
Ricochet Shots Taken at 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 intentionally.”
Multiple senators, including Sen. Elizabeth Warren, D-Mass., also took shots at the legitimacy of the world’s largest cryptocurrency exchange, while also invoking the specter of money laundering and terrorist funding.
As relayed by PYMNTS, Binance has been making headlines recently amid asset withdrawals as it becomes a magnet for the fear, uncertainty and doubt surrounding the broader crypto industry.
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