Sceptical members of the Senate Banking Committee will hear from both crypto believers in a Valentine’s Day hearing to try and make sense of the recent “crypto crash” and advocate for new, more strenuous regulatory safeguards to protect consumers. The hearing comes at a pivotal moment for cryptocurrencies. Scandals, fraud, dramatic arrests, international manhunts, and “plain old-fashioned embezzlement” have sent crypto valuations plummeting and soured relationships between the elites of decentralized finance and U.S. lawmakers. In some cases, top financial authorities 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. “It’s time-tested rules and laws to protect the investing public.”
Tuesday’s hearing could 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 fair share of the time highlighting so-called stablecoins pegged to the U.S. dollar. The sudden 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 could “threaten financial stability,” in the wider economy.
Lawmakers will question three expert witnesses including Linda Jeng, the chief global regulatory officer and general counsel for major crypto advocacy group Crypto Council for Innovation. Jeng, who will testify under her personal capacity as an academic and researcher, is expected to try and separate the broader crypto space from specific bad actors like FTX’s Sam Bankman-Fried, and call for a precise, nuanced, and possibly light-handed regulatory approach.
“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.
As a former regulator, I strongly believe in the important mission of regulators to protect consumers and ensure financial stability. But the recent wave of banking agency statements is worrying for the future of the US financial s…https://t.co/yCcKYoGL05 https://t.co/fcv3xoGtWq
— Linda Jeng (@LindaJeng1) February 3, 2023
If all of this sounds somewhat familiar, it’s because lawmakers in the The House Financial Services Committee gathered 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 CEO 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” headed by SBF.
Crypto companies, particularly those with stablecoins, are under intense scrutiny after Terra, Luna, and FTX
Just this week, the New York Department of Financial Services ordered Paxos to stop minting new units of the Finance USD stablecoin. Making matters worse, a recent Wall Street Journal report claims Paxos could soon face an SEC lawsuit over the stablecoin. Combined, those event caused Binance CEO Changpeng Zhao to say Binance would start to see users “move away” from the Binance stablecoin.
6/ “IF” BUSD is ruled as a security by the courts, it will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such.
— CZ 🔶 Binance (@cz_binance) February 13, 2023
Just days prior, failing crypto exchange Kraken revealed it would fork over $US30 ($42) million to settle SEC allegations claiming the company crypto “staking” service was in fact an illegal sale of securities. At the same time, the DOJ’s fraud investigators are reportedly beginning a criminal investigation into Silvergate Capital’s dealings with FTX and Alameda Research.
The sudden influx of regulatory action and interest had led some regulatory allergic crypto pusher.