In a year when regulators and lawmakers were bearing down on cryptocurrencies, the FTX disaster was the last thing the industry needed. And now, the U.S. House Financial Services Committee plans to hold a hearing in December on the failure of the No. 2 crypto exchange.
By examining the causes behind the bankruptcy of a company that was doing $10B in daily trading volume, the televised congressional hearing is bound to cast a spotlight on the perils of a largely unregulated marketplace and further besmirch the reputation of cryptocurrencies.
“The fall of FTX has posed tremendous harm to over one million users, many of whom were everyday people who invested their hard-earned savings into the FTX cryptocurrency exchange, only to watch it all disappear within a matter of seconds,” said Rep. Maxine Waters (D-Calif.), the committee’s chairwoman.
The committee said it planned to seek testimony from Sam Bankman-Fried, the co-founder and CEO of FTX, and other executives at the exchange and its sister company, the hedge fund Alameda Research, as well as Binance, the Cayman Islands-based exchange and FTX rival.
Without a subpoena, the panel cannot force Bankman-Fried to take part in the hearing, and even then he could choose to invoke the Fifth Amendment of the U.S. Constitution and decline to answer questions.
Waters said that legislative action is needed to ensure that digital asset platforms cannot operate outside of robust federal oversight. “Unfortunately, this event is just one out of many examples of cryptocurrency platforms that have collapsed just this past year,” she added.
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On Wednesday, Secretary of the Treasury, Janet Yellen, called on more rigorous oversight for the cryptocurrency sector in light of FTX’s failure.
Yellen said that many of the risks identified by government agencies throughout the year were instrumental in FTX’s collapse, including “comingling of customer assets, lack of transparency, and conflicts of interest.” She also reiterated concerns that connections between crypto and traditional capital markets could jeopardize financial stability.
“We have very strong investor and consumer protection laws for most of our financial products and markets that are designed to address these risks,” Yellen said. “Where existing regulations apply, they must be enforced rigorously so that the same protections and principles apply to crypto assets and services. The federal government, including Congress, also needs to move quickly to fill the regulatory gaps.”