2 - 4 minute read
The collapse of crypto exchange FTX has reignited the debate about the role of cryptocurrency in the economy and the appropriate level of regulation. While some have argued that the failure of FTX is an indictment of crypto as a whole, U.S. Senator Pat Toomey (R-PA) has pushed back against this perspective.
Speaking at a Senate Banking Committee hearing, Toomey emphasized that the wrongful behavior that occurred at FTX was not specific to the underlying asset, but rather a breakdown in the handling of those assets. He explained that the collapse of FTX was not an indictment of crypto, but rather a result of “unauthorized lending of customer assets to an affiliated entity, and there were fraudulent promises to investors and customers about FTX’s operations.” These actions, Toomey argued, are “outrageous and completely unacceptable.”
Toomey also addressed suggestions that crypto should be banned following the FTX meltdown, stating that it would be “profoundly misguided, not to mention impossible.” Short of enacting “draconian, authoritarian policies,” Toomey said that cryptocurrency cannot be stopped and would simply migrate offshore if Congress tried. He compared the suggestion to ban crypto to the responses to the 2008 financial crisis and the collapse of a commodity brokerage firm run by former New Jersey Senator John Corzine. In both cases, Toomey argued, the problem was not the instruments used, but rather the misuse of customer funds and gross mismanagement.
Toomey argued that Congress should not refrain from regulating crypto, stating that it would be “irresponsible” to do so. He pointed out that individuals can be empowered when they use cryptocurrencies, as they can protect against inflation and provide useful services without the need for a company or middleman. At the same time, Toomey acknowledged the potential risks associated with investing in cryptocurrency, stating that “Congress needs to give regulatory clarity so business flows to prudent, sensible, well-regulated American crypto exchanges.”
While the collapse of FTX is a reminder of the potential risks associated with investing in cryptocurrency, it should not be used as a justification for banning or pausing crypto. Instead, it highlights the importance of proper regulation and oversight to protect consumers and ensure the integrity of the market.
Toomey’s comments at the Senate Banking Committee hearing highlight the need for a balanced approach to regulating cryptocurrency. While the potential risks associated with investing in crypto cannot be ignored, a blanket ban or moratorium on the use of crypto would be misguided and likely ineffective. Instead, Congress should focus on providing regulatory clarity and oversight to ensure that well-regulated American crypto exchanges are able to operate and provide consumers with the benefits of using cryptocurrencies, such as protecting against inflation and providing useful services without the need for a middleman.
Ultimately, the collapse of FTX serves as a reminder that proper regulation and oversight are necessary to protect consumers and ensure the integrity of the market. By taking a balanced approach to regulating crypto, Congress can help to foster a thriving and transparent cryptocurrency market that benefits consumers and the economy as a whole.