Senate Banking Committee holds Valentine’s Day hearing on 2022 crypto crash
The U.S. Senate Banking Committee discussed last year’s cryptocurrency market crash and bankruptcies of various companies during a hearing on Tuesday. February 14.
Chairman Brown Calls for Regulation
Several individuals have commented on the state of the cryptocurrency industry. Chairman Sherrod Brown took a tough stance on the issue, stating:
“These cryptocurrency catastrophes have revealed what many of us already knew: Digital assets are run by reckless corporations that endanger the hard-earned money of Americans. It’s a speculative product, not surprising in an industry built to circumvent rules.”
In his opening statement, Brown said the cryptocurrency market will lose $1.46 trillion in 2022, with cybercriminals stealing $3 billion and businesses cutting 1,600 jobs (other estimates 23,600 in 2003). He also noted the lack of participation of the crypto industry in this year’s Super Bowl and discussed the extent of FTX’s collapse.
Brown said the crisis had not spread to the broader financial system, but its potential was “glimbed” when several crypto banks needed loans after the bank run.
He suggested that the crypto industry should be subject to “basic common sense principles” that apply elsewhere. His recommendations included consumer protection, conflict prevention and transparency requirements.
Scott Calls for SEC Enforcement
Ranking member Tim Scott suggested there was room for safe financial innovation, but acknowledged Brown’s concerns about the current regulatory state.
Specifically, Scott criticized the U.S. Securities and Exchange Commission’s attempts to enforce regulations during the 2022 market crash. He said:
“The SEC has failed to take meaningful precautions to ensure that this type of catastrophic failure never happens again.”
Scott said investors need to know why the SEC didn’t act before FTX collapsed, and why millions of dollars in cryptocurrency investments went unrecovered. This concern also applies to other companies and projects such as Terra, Celsius, Voyager Digital and BlockFi, which failed in 2022, he added.
The SEC has taken action against many cryptocurrency companies, often after their failures. Several high-profile companies are still involved in bankruptcy proceedings and have not returned funds to their customers.
Scott also observed that SEC Chairman Gary Gensler was absent from the Senate hearings today, despite other public appearances. He should be here for his sake,” he said, adding that Congress “needs to hear from him soon.”
eyewitness industry comments
Three witnesses also gave statements at the hearing.
Lee Reiners, policy director at the Duke Financial Economics Center, noted that some cryptocurrencies are commodities, not securities. The CFTC regulates commodity derivatives, not commodity spot markets such as cryptocurrency exchanges. As such, Reiners has urged Congress to fill that regulatory gap and has presented options for doing so.
Vanderbilt University Law School Professor Yesha Yadav has suggested that a public regulatory framework could allow cryptocurrency exchanges to partially self-regulate. This allows businesses to fund regulatory efforts and save taxpayers money.
Professor Linda Jenn of the Georgetown Institute of International Economic Law suggested that the supposed “cryptocurrency collapse” should be put into context. She said the bankruptcy of a particular company should not declare the entire industry a failure. She added that the cryptocurrency market cap is still over $1 trillion, and observed that full-time crypto developers grew 8% year-over-year in 2022.
Prepared remarks from each speaker did not focus on recent high-profile actions, such as those opposing Kraken’s staking service and Paxos’ BUSD stablecoin. These developments will undoubtedly be topics for further discussion.