Since the crypto-trading platform’s November bankruptcy, lawmakers have called for federal regulators such as the Securities and Exchange Commission to police cryptocurrency markets more aggressively. They also have questioned whether legislation favored by the industry to create a new regulatory framework for cryptocurrencies goes far enough.
Some in Congress are working on proposals that would apply existing rules for banking, securities, taxes and anti-money-laundering to cryptocurrencies. Lawmakers are expected to review their options when Congress returns.
FTX’s demise capped a tumultuous year for crypto, in which several consumer-facing firms failed and some digital tokens lost all of their value. The total value of cryptocurrencies fell below $850 billion in December, according to data provider CoinGecko, after reaching more than $3 trillion in November 2021.
“Someone needs to convince me that it’s not all just a Ponzi game,” said Sen.
Roger Marshall
(R., Kan.).
Mr. Marshall was previously optimistic about the prospects for crypto’s underlying technology, known as blockchain.
Sen. Roger Marshall, who once was bullish on crypto’s potential, is now backing legislation to more strictly regulate it.
Photo:
Michael Brochstein/Zuma Press
“I expected credit cards to start using it to stop fraud, I expected every transaction I make through my bank to be using it,” he said, describing his view after participating in a 2018 hearing on blockchain. “But no one’s using it.”
In December, Mr. Marshall co-sponsored a bill with Sen. Elizabeth Warren (D., Mass.) aimed at subjecting more crypto transactions to rules against money-laundering.
Prosecutors and regulators allege FTX founder
Sam Bankman-Fried
directed FTX—until recently one of the largest and most-trusted crypto platforms—to transfer billions in customer assets to his trading firm, Alameda Research. He and his associates, two of whom have pleaded guilty to charges including wire fraud, allegedly squandered the money on bad investments, lavish real estate and political contributions.
Before Mr. Bankman-Fried’s downfall, lawmakers and congressional candidates from both parties took in more than $70 million in campaign donations from FTX and its employees. Many were eager to meet with Mr. Bankman-Fried.
“Everybody loved the exciting idea of a politically progressive, smart entrepreneur who was going to reimagine capitalism and change the world,” said Rep.
Bill Huizenga
(R. Mich.) at a December House hearing on FTX. “I’m glad to see it’s finally unraveled.”
One of Mr. Bankman-Fried’s priorities in Washington was to persuade lawmakers to pass a bill giving the Commodity Futures Trading Commission authority to regulate the largest cryptocurrencies. Such a law could have provided FTX and other trading platforms with a smoother path to regulatory compliance in the U.S. and a deeper pool of potential investors.
A political-action committee affiliated with Sen. Chuck Schumer was among the recipients of FTX campaign contributions.
Photo:
Mariam Zuhaib/Associated Press
FTX’s collapse in 2022 killed the bill’s opportunity to advance during the last Congress after the Senate Agriculture Committee canceled a tentative plan to debate it in November. Senate Majority Leader
Chuck Schumer
(D., N.Y.) had previously indicated to FTX officials a willingness to include the bill in the recently passed omnibus spending package if it could get out of committee by December.
Mr. Schumer’s affiliated political-action committee, Senate Majority PAC, received $3 million from Mr. Bankman-Fried and one of his deputies ahead of the midterm elections. Following FTX’s collapse, the PAC set aside the money with the intention of returning it, a spokeswoman said.
More lawmakers have criticized crypto following the FTX bankruptcy. Rep.
Emanuel Cleaver
(D., Mo.) proposed a resolution to call cryptocurrency “Creepy Dough.” Sen.
Chris Van Hollen
(D., Md.) said comparisons between FTX and the subprime mortgage boom that preceded the 2008 financial crisis or the Enron accounting scandal were imprecise because “at least in those cases they were backed by real assets.”
Some congressional allies of the industry are also upset.
“My patience with the crypto bulls is wearing thin,” Rep. Jake Auchincloss (D., Mass.) said at the December House hearing. “It’s time for the blockchain investors and entrepreneurs to build things that matter or to lose more credibility.”
A member of the Congressional Blockchain Caucus, Mr. Auchincloss received campaign donations from crypto executives including Mr. Bankman-Fried ahead of the midterms. In September, he was given a “digital future award” by the Crypto Council for Innovation, a lobbying group that includes
Coinbase Global Inc.
and, until recently, FTX.
Mr. Auchincloss said that in the 14 years since the first cryptocurrency, bitcoin, was invented, other innovations such as energy storage and DNA sequencing have seen breakthroughs. Crypto, he said, has only delivered “white papers and podcasts.”
The industry still has congressional supporters. One of them, Rep.
Patrick McHenry
(R., N.C.), is set to lead the House Financial Services Committee in the new Congress, where he would have the power to bring bills up for a vote.
Rep. Jake Auchincloss, a member of the Congressional Blockchain Caucus, said the crypto industry had work to do to restore credibility.
Photo:
Nancy Lane/Associated Press
“We have to separate out the bad actions of an individual from the good created by an industry and an innovation,” Mr. McHenry said. “So let me be clear: I believe in the promise of digital assets.”
Kristin Smith, executive director of the Blockchain Association, said she is now less optimistic that Congress will act on industry-backed legislation.
“As the number of people who are paying attention to crypto has expanded, those who previously weren’t engaged on these issues are expressing themselves as being pretty anti-crypto,” Ms. Smith said. “It’s certainly not an ideal place to be.”
Write to Paul Kiernan at [email protected]
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