Cryptocurrency Regulation Stalls in Washington Despite FTX Conviction

The conviction of former cryptocurrency mogul Sam Bankman-Fried has renewed calls for regulation of the industry, but Congress has shown little interest in taking action.

The conviction of former cryptocurrency mogul Sam Bankman-Fried for stealing at least $10 billion from customers and investors is the latest black mark for the cryptocurrency industry. However, in Washington, there seems to be little to no interest in pushing through regulation.

Congressional Inaction

When cryptocurrencies collapsed and a number of companies failed last year, Congress considered multiple approaches for how to regulate the industry in the future. However, most of those efforts have gone nowhere, especially in this chaotic year that has been dominated by geopolitical tensions, inflation, and the upcoming 2024 election.

Ironically, the failure of Bankman-Frieds FTX and his subsequent arrest late last year may have contributed to the momentum for regulation stalling out. Before FTX imploded, Bankman-Fried spent millions of dollars — illegally taken from his customers it turns out — to influence the discussion around cryptocurrency regulation in Washington and push for action.

Regulatory Action by the SEC

Without Congress, federal regulators like the Securities and Exchange Commission (SEC) have stepped in to take their own enforcement actions against the industry, including the filing of lawsuits against Coinbase and Binance, two of the biggest crypto exchanges.

And most recently PayPal received a subpoena from the SEC related to its PayPal USD stablecoin, the company said in a filing with securities regulators Wednesday. "The subpoena requests the production of documents,” the company said. We are cooperating with the SEC in connection with this request.

Stumbling Blocks in the Senate

Still, Congress still has yet to act. Sens. Debbie Stabenow, D-Mich, and John Boozman, R-Ark, proposed last year to hand over the regulatory authority over cryptocurrencies bitcoin and ether to the Commodities Futures Trading Commission. Stabenow and Boozman lead the Senate Agriculture Committee, which has authority over the CTFC.

One big stumbling block in the Senate has been Sen. Sherrod Brown, D-Ohio, chair of the Senate Banking Committee. Brown has been highly sceptical of cryptocurrencies as a concept and he's been generally reluctant to put Congress blessing on them through regulation. He's held several committee hearings over cryptocurrency issues, ranging from the negative impact on consumers to use of the currencies in funding illicit activities, but has not advanced any legislation out of his committee.

Lack of Interest from the White House and the Senate

In the House, a bill that would put regulatory guardrails around stablecoins — cryptocurrencies that are supposed to be backed by hard assets like the US dollar — passed out of the House Financial Services Committee this summer. But that bill has gotten zero interest from the White House and the Senate.

President Joe Biden last year signed an executive order on government oversight of cryptocurrency that urges the Federal Reserve to explore whether the central bank should jump in and create its own digital currency. So far, however, there has been no movement on that front.

Consumer Advocates' Skepticism

Consumer advocates are skeptical about the need for new rules."There is no need for any special interest crypto legislation which would only legitimise an industry that is used by speculators, financial predators, and criminals, said Dennis Kelleher, president of Better Markets, a nonprofit that works to "build a more secure financial system for all Americans,” according to its website.

"Moreover, almost everything the crypto industry does is clearly covered by existing securities and commodities laws that every other law-abiding financial firm in the country follow, he said. Bartlett Collins Naylor, a financial policy advocate for Public Citizens Congress Watch said "laws on fraud and securities are currently sound.”

The lack of regulation in the cryptocurrency industry has been a major concern for many, and the recent conviction of Sam Bankman-Fried has only served to highlight the need for action. While Congress has been considering multiple approaches to regulation, most efforts have stalled, leaving the industry in a state of limbo. It remains to be seen whether the SEC's enforcement actions will be enough to address the issues in the industry, or if further regulatory action will be necessary.