DC shift on FTX? Don’t change a lot

If you held your breath for a dramatic shift in a public response to cryptocurrency seek immediate medical attention.

It has been three weeks since the FTX crypto exchange melted down. But as the events of the past day have shown, the post-collapse landscape bears an eerie resemblance to the pre-collapse landscape.

Late last night, the ousted FTX CEO was video-streamed to a New York Times conference call to describe the crash as a result of honest mistakes and offer regulators their suggestions. After that, the audience applauded.

Also yesterday, investor Bill Ackman publicly stated his faith in the reliability of Sam Bankman-Friend, and some prominent financial commentators continued to refer to the FTX name to praise the reliability of regulatory status quo.

Bankman-Fried went to Good Morning America this morning to apologize as the Senate Agriculture Committee called a hearing titled “Why Congress Must Act: Lessons Learned from the FTX Collapse.”

For several participants, the main lesson was the importance of passing a bill backed by Bankman-Fried that would strengthen the powers of the Commodity Futures Trading Commission in relation to cryptocurrencies.

CFTC Chairman Rostyn Behnam cited the continued solvency of one of the local CFTC-regulated companies, FTX US Derivatives, as evidence of the value of his agency’s oversight and reason for moving forward with legislation despite its association with the failed exchange. .

Hearing gave some others possible lessons. Behnam suggested taking a break for a few weeks to “take a fresh look” at the pending Digital Consumer Protection Act. He also suggested that it be amended to strengthen the disclosure and conflict of interest provisions.

But, as the events of the last day have shown, several factions appear to have strengthened more than they did a month ago.

Supporters of the Senate agriculture bill say the passage of their bill was purple urgently Even cryptocritics of the Senate condemning the industry in the language, that is purple colorful Even crypto-purists purple I am sure that the real problem of cryptography is pollution by methods of traditional finance. And critics of SEC Chairman Gary Gensler purple angry at him.

So why has so little changed since last month’s spectacular crash?

On the one hand, it’s still early.

More smoke will have to be cleared from the wreckage of FTX before there is a chance to form any kind of consensus.

While a general picture of reckless management and self-employment has emerged, many of the details of the collapse remain unknown, or at least unconfirmed. It is not yet clear how the bankruptcy will develop and how badly clients will be affected.

For US regulators, one important unknown is related to retail cryptocurrency exchange FTX in the US.

Apparently, her clients’ funds remain frozen, even though Bankman-Fried, who no longer controls the company, argues that the US exchange should be fully solvent and the means must be.

The ultimate fate of these funds will shed more light on the adequacy of US regulations.

Meanwhile, Bankman Fried unorthodox solution keeping oneself in the spotlight contributed to creating an atmosphere of suspended reality.

His detractors are convinced that he will end up in an orange jumpsuit, but for now, he still appears on television in a wrinkled T-shirt, giving advice on how to regulate cryptocurrencies.

Secondly, cryptocurrency was already a polarizing technology with a dubious reputation.

The collapse of FTX highlighted the risks of investing in cryptocurrencies and the wisdom of keeping the rest of the financial system isolated from the industry, at least in its current form. On the other hand, so is the latest wave of cryptocurrency crises this spring.

For some, Bankman-Fried briefly represented the legitimate face of cryptocurrency and a sign that the industry was ready for prime time. But many people had strong views on cryptocurrencies that were not affected by the collapse of yet another low-quality business.

And it matters who got hurt.

Many people lost access to their savings after the FTX crash, but few of them are American grandmothers. From the perspective of US regulators and the American public, this matters.

Given crypto investing’s reputation as a high-risk venture, some commentators shrugged – note that the industry does not disrupt global markets – and said: Yes something like that.

In wealthy countries, investing in cryptocurrencies is often viewed as a form of gambling. In addition, most of FTX’s clients were foreigners using an offshore exchange.

On the other hand, in some poorer parts of the world, people are using cryptocurrencies as a financial lifeline. In parts of West Africa with high FTX inflation promoted himself customers who used it to store their dollar-pegged stablecoin savings.

Bankman-Fried had not yet appeared in front of them to explain himself, and if he did, they might not applaud.

Today New York, tomorrow the whole world.

Or at least a country. This was stated by a member of the New York State Assembly. New York Daily News article yesterday, announcing a two-year moratorium on proof-of-work cryptocurrency mining imposed by the Governor of New York. Kathy Hochul signed into law last week should become a model for other states seeking to curb cryptocurrency. considerable energy consumption

Referring to a possible closure Crypto mining plant Greenidge, a coal-fired facility that was shut down but reopened by private capital to power a fleet of bitcoin mining computers, New York State Representative. Anna Kelles and climate attorney Mandy DeRoche wrote: “This may be a major win, but we can’t afford separate grassroots campaigns every time we need to shut down a climate change accelerating cryptocurrency mine…other states like Texas, Kentucky. and Pennsylvania, which also hosts a significant portion of the country’s cryptocurrency mining.”

The industry naturally disagrees: when the moratorium was originally passed by the New York State Senate, Blockchain Association chief executive Kristin Smith said in a statement that it would be an unwise economic decision for “a state that is already creating problems for doing business.” — Derek Robertson

Some extra context for Sam Bankman-Freed’s stunning media tour: This can only make the situation worse.

Sam Sutton of POLITICO reported before last night. twisty conversation with Andrew Ross Sorkin of The New York Times that “crisis management professionals, public relations experts and even some lawmakers” are warning that the FTX founder is actually in the process of drawing a giant bullseye on his chest, legally speaking.

“It’s worth nothing to be silent, but he doesn’t seem to be able to do that,” Nicky Kristoff, a Washington-based strategic consultant who previously held senior political communications positions at Uber and Google, told Sam. “If I were advising him right now, I would tell him that every moment, every second of your time, every cell of your brain should be focused on making people healthy,” said former Obama administration official Sarah Feinberg. adding that when it comes to a potential congressional hearing, since he hint of openness to “If a House committee isn’t giving you a check to the people you scammed, you probably shouldn’t be wasting your time on this.” — Derek Robertson

Stay in touch with the entire team: Ben Schrekinger ([email protected]); Derek Robertson ([email protected]); Steve Hueser ([email protected]); as well as Benton Ives ([email protected]). follow us @DigitalFuture on Twitter.

Ben Schrekinger writes for POLITICO on technology, finance and politics; he is a cryptocurrency investor.

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