Sam Bankman-Fried, FTX, and the Future of Crypto Regulation

Now, We Have More Questions Than Answers About Crashing Crypto Exchange FTX last week. Will account holders get their money back? Will Sam Bankman-Fried (aka SBF) face criminal charges? What happens to everyone who accepts his donation?is it finally The beginning of the end of encryption?

Then there’s the question before us: how did this happen, and how do we make sure it doesn’t happen again? Answering that question is complicated because many preliminary investigations into Bankman-Fried, his trading firm Alameda Research and FTX have only just begun.Still, what has emerged has revived calls to regulate an industry that has long touted its lack of regulation as one of its main features.

These calls are getting louder now, and everyone seems to agree that something needs to be done about cryptocurrency regulation. But there doesn’t seem to be any consensus on what that should be.At the same time, FTX has has filed for bankruptcyalthough liquidators in the Bahamas said on Wednesday they refused to “effectiveness“Proceedings.

“The FTX bankruptcy is both devastating and concerning, but at the same time, it’s not surprising,” said Sen. Cynthia Lummis (R-WY), who co-authored a cryptocurrency report earlier this year. bill with Sen. Kirsten Gillibrand (D-NY) told Recode. “Above all, we need comprehensive regulation in place to weed out bad actors and ensure consumers have confidence in the institutions they are trusting with their hard-earned dollars.”

While the FTX debacle didn’t send the stock market down with it, other crypto platforms certainly felt the ripple effect, and leaders in Washington are seizing the moment to call for more or better regulation of crypto as a whole. Senator Elizabeth Warren (D-MA) tweeted Friday that the FTX debacle showed the need for “stricter rulesOn the other hand, cryptocurrency proponent Rep. Jake Auchincloss (D-MA) said Congress has already made some proposals weighing Should continue to consider.U.S. Treasury Secretary Janet Yellen Say FTX’s debacle proves crypto platforms need to better protect customers, while SEC Chairman Gary Gensler allegedly Much of the broader crypto industry “does not comply” with existing regulations.

Some blame Investors didn’t investigate FTX more carefully before giving the company billions.However, many members of the crypto industry have speak out Regarding their dissatisfaction with the current practice of the government. Many people are angry with the SEC — especially Gensler. Rep. Tom Emmer (R-MN), who co-leads the Congressional Blockchain Caucus, defendant SEC Aids FTX And ​​Bankman-Fried In Attempt To Build A Monopoly, Coinbase CEO Brian Armstrong Accuses Commission Of Not Create regulatory clarity. Some cryptocurrency skeptics also believe that the SEC is basically wrong.

“The FTX debacle was absolutely a mistake by financial regulators,” said Stephen Diehl, a software engineer and prominent critic of the crypto industry. “Financial markets need a policeman, and right now, crypto markets don’t have one.”

FTX is not the first financial institution to fail in this crisis fraud allegations, and why FTX ultimately failed may remain unclear for some time. Still, the legal gray area in which cryptocurrencies operate does seem to make this outcome more likely, experts told Recode.Cryptocurrency exchanges are not supervised like banks even agency. While the lack of oversight makes crypto a more speculative investment — more attractive to some investors — it also makes FTX a riskier place to store assets.encrypted account no federal deposit insurance.

“This fraud wouldn’t necessarily behave the same way if it were a more traditionally regulated entity,” said Rohan Gray, a Willamette University law professor who has defended Rep. Leib (D-MI) provided advice. “But the actual fraud itself … stealing customers’ money is an old story.”

The FTX implosion is currently being investigated by the SEC and the Commodity Futures Trading Commission (CFTC), which regulates U.S. derivatives, as well as the Manhattan U.S. Attorney General’s Office and Department of Justice.Although the company technically based on In the Bahamas, exchanges may have enough ties to the U.S. file a case. Potential conviction may hinge on Bankman-Fried evidence, some say on purpose Committing Fraud While Other Legal Experts Suggest Transferring Customer Funds to Support Alameda Violates FTX Terms of Service AgreementInvestigators may also focus on FTX US, the more regulated U.S. side of FTX’s business, because it should be subject to more oversight, at least in theory.

Christine Parlor, a finance professor at Berkeley’s Haas School of Business, explained that FTX US has an “alphabet soup of licenses,” and some of its deals decline Under the oversight of the CFTC. “What’s clearly missing is an overview of the big picture — the fact that the money isn’t fenced in,” she said.

It’s unclear where the conversation around regulation will go next.The House Financial Services Committee has Announce It will hold a hearing on FTX in December, another hearing It will be held by the Senate Banking Committee. Still, there is little agreement on what the best legislation might be.Senate Agriculture Committee Delay A marker for a bipartisan crypto proposal backed by FTX and Bankman-Fried.In Twitter DM This week’s interview with Vox’s Kelsey Piper“Fuck the regulators,” Bankman-Fried said.

Some have suggested that the solution is not necessarily pass new laws, but to fund and hire more people to enforce the laws we already have. Gray suggested that, in addition to new laws to control the crypto industry and regulate stablecoins, the government must look at legislation to support initiatives such as public banks. Xuan-Thao Nguyen, director of the Asian Law Center at the University of Washington School of Law, told Recode that part of the solution should include considering regulations requiring the reporting of crypto losses and gains at fair value, as well as protections for cryptocurrencies attached to stock accounts similar to those operated by brokerage firms. Escrow account.

Of course, part of the challenge will be navigating the broader crypto industry, which is spending a lot of time and money pushing the legislation it wants. (Until recently, Bankman-Fried has been trying to do it himself.) Meanwhile, the debate over which federal agencies should take the lead in regulating cryptocurrencies, particularly the tension between the SEC and the Commodity Futures Trading Commission, has almost of course continue. In March, President Biden signed the executive order This launched a broad effort to regulate cryptocurrencies. While the move has been largely welcomed by the crypto industry — with bitcoin prices rising — it’s unclear whether FTX’s debacle will change its approach to the new rules. certainly, Regulatory Authority Other countries are also involved.

“How did Bernie Madoff legally allow this to happen? It’s not. Bernie Madoff has long engaged in illegal activities and no one has found out,” said Aaron Klein, a senior economic research fellow at the Brookings Institution. “There’s a natural undercurrent of saying, ‘Wow, this is really bad. We should have more regulation to stop it. You might say, ‘You can’t regulate honesty.'”

Disclosure: In August, Bankman-Fried’s philanthropic family foundation Building a Stronger Future awarded Vox a Future Perfect a awarded Reporting project for 2023. The project is now on hold.

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